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Are there any known quantitative techniques to distinguish between market makers and other participants?

I manually MFT, have no knowledge of these specialties, and may be observing phenomena that really aren't there, but it seems that when I'm working an order between the spread, trying for a better than best offer price, the IV will drift away from its current average against my favor. In fact, if I move my offer away from the opposing best, the best offer immediately moves to my previous offer with no change in underlying price.

As an example, if I'm bidding X, the offer is X+0.01, and the underlying moves from Y to Y-0.01, my order is not hit, but after I move my bid to X-0.01, and the underlying remains at Y-0,01, the ask moves to X. I think I observe the analogue when selling as well.

I'm sure I leave signatures that indicate I am not algorithmically trading that I'm identified as a non-market maker, so is that why I'm perceiving this phenomenon, or is it merely coincidence? If my observations are valid, what techniques are used to identify my orders as non-market making?

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  • $\begingroup$ Is that reproducible, i.e. does it happen every time for a particular instrument? I've never seen this phenomenon (in the commodities markets) $\endgroup$
    – hroptatyr
    Nov 29, 2013 at 7:38
  • $\begingroup$ @hroptatyr I think I perceive it when trading the most liquid equity options and the spread has widened to a 2x0.01 gap with the side I'm trying to hit 2x the potential liquidity provided by my side. If my side has the dominant potential liquidity or the spread is less, and I move towards the other side, I'm frequently hit immediately. $\endgroup$
    – user6500
    Nov 29, 2013 at 14:15

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It's got nothing to do with you being identified as a market maker or not. It is simply that the other participants at that time are passive traders. The choice between hitting a bid or lighting a new level with a new offer are distinct and very different (especially, in some markets, in terms of fees paid or rebates received).

So, you're not being identified as a non-market maker, you're simply trading in a market full of other passive limit traders ("market makers" either official or not). When you fade your bid some other participant sees an opportunity to improve the offer and does so.

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  • $\begingroup$ Thank you! I had a feeling that it had something to do with the rebates, as my trade costs are much lower when I allow my orders to be hit rather than hitting others'. $\endgroup$
    – user6500
    Nov 29, 2013 at 14:18

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