Orange Juice Trade - Trading Places

[LINK] and actually, I've always, always loved this scene since I was a kid: [VIDEO] - takes some thinking to learn how the markets were cornered and how they made all that money shorting OJ commodities. But your point here is well taken - are these rich folks placing bets and toying with poor folks? Hmm.

If there was a bad response to a critic, this will be it. While Sirer's post was a bit terse, this response doesn't earn brownie points by going the same route. First, they start off as many "responses" in crypto currency seem to start that is - saying this is all FUD and the critic should stop spreading FUD. They also take the Trump route, not a great choice of words - "fake news". Where I lost them was when they equated themselves as being so important to crypto currency space that critiquing them can be used to tag the whole space as being a giant ponzi scheme. On still persisting, I found their clarification on "asynchronous price discovery" very funny. The point of a market making algo is to "make the market" ie they have to act as counter parties to each trade irrespective of whether there is a buyer or a seller (ie not a price matching algo). The price discovery in that process happens on how the market making algo is written. Though I guess being programmers and writing a document for programmers they had to go with a technical term. But with someone who understands economics on their team, they should have done away with it. All said, the most important part of a market making algo is not to provide liquidity or smooth prices. As Sirer put it, smoothing prices is a bad idea. If something is volatile it is because the market deems it to be so. Going against the market is not good. I hope these guys watch this video carefully to understand how trading works: [VIDEO]

This is the very basic function of a market maker. They offer to "make" a market even when none exists. So if everyone wants to buy they will keep offering until their inventory runs out. I haven't read the Bancor paper or code so I am not sure if this is implemented but every market maker's another objective is to make money. So they normally don't trade on a fair price, rather fair price - x/2 to buy and fair price + x/2 to sell where x is the spread to collect money. So effectively they buy low and sell high for a minute difference. As for a scenario where they have only buyers, the algos or people on the floor tend to take stock of the existing orders and start moving the ask higher to compensate. This happens until it becomes untenable to buy and some sellers start entering the market to make a quick buck. A good video on how trading works from Trading Places: [VIDEO]

This is still the best (Hollywood quality) depiction of what the trading pit looked like in reality. Trading Places, 1983: [VIDEO]