The Only Game in Town Trader Description
Table of Contents
This is a summary of some of the points made in:
Bagehot, Walter. "The only game in town." Financial Analysts Journal 27.2 (1971): 12-14.
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1. Three Types of Traders
The table below lists the three types of traders that the market maker confronts. The second column indicates whether the market maker generally gains (+) or loses (-) from trading against each type. The third columns describes each trader type's motivation for trading.
| Type | MM +/-? | Description |
|---|---|---|
| Informed | - | Has information on asset values the market doesn't |
| Noise | + | Thinks they have special information, but actually doesn't |
| Liquidity | + | Trades for typical investment purposes |