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How The First Best Market Works

Traders Magazine, November 1998

John A. Byrne

The following is an example of how the proposed First Best Market Concept would work:

Assume that there are five firms making a market in ABCD Corporation. For ease of example, each of the five traders has a bid of one dollar and an ask of one dollar fifty cents ($1 1/2). If, for example, MMA (market maker A) has developed a short position of 10,000 shares at $1 1/2, it would make economic sense for MMA to raise its bid to $1 1/8 or more to induce someone to sell that stock.

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