ThePit.com acts as a market maker on thePit1 exchange. The role of the Market Maker at thePit.com is modeled after the specialists on any of the major U.S. equity exchanges. A specialist is a liquidity provider that stands ready to trade from his own account by committing capital to execute orders.
The difference between the price at which a Market Maker is willing to buy a card and the price at which he is willing to sell it is the Market Maker spread. On thePit1 exchange, we will make every effort to ensure that the spread remains tight, allowing users to actively and profitably enter in and out of positions. For example, a card worth $100 would normally have a spread of $3. A likely price made by the Market Maker for this card is a $98.50 buy price against a $101.50 sell price. There are factors that ultimately affect a Market Maker's spread:
- Cards with potential for high volatility: There are certain cards, such as cards of first-year players who have the potential for having a breakout season, that run the risk of explosive moves. These cards are analogous to the penny stock of a start up company, which has the potential for a major breakout. Because the risks associated with these cards are greater, we may quote wider Market Maker spreads.
- Cards with low populations: By their very nature, cards with low populations will be the most illiquid, and therefore, the most difficult to trade. We therefore may quote wider spreads on these cards due to the higher risks associated with illiquidity.
The Market Makers at thePit.com are committed to provide our account holders with prices that most accurately reflect true market values of the cards, as dictated by economic factors. The price and spread quoted by the Market Maker is the most efficient price to bring buyers and sellers together. Throughout the course of the trading day, the Market Maker will need to adjust his price to reflect new information in the market place. This information includes:
- Breaking News: Market Makers at thePit.com are constantly monitoring breaking news, in the form of statistical performance, off-the-field stories, and expert analysis. When news breaks, the Market Maker will determine if it is necessary to change the prices on affected cards. For example, a breakout performance by a top rookie will drive up demand, and raise the price of the card accordingly. Likewise, if that same rookie were injured in a game, the price of his card would naturally drop.
- A Price Change in a Similar Card: Each listed card has a unique supply and demand. There is, however, a relationship between similar cards. If a card has a significant price move, the Market Maker may change the prices on all similar cards as well. For example, if a Ken Griffey PSA 10 doubles in price, the Market Maker may also raise the prices for the PSA 8's and PSA 9's.
- Supply and Demand Issues: Every time a Market Maker buys or sells cards from an account holder, his inventory changes. Through sophisticated analysis, thePit.com has determined the optimal level of inventory that a Market Maker should hold for each of the cards on thePit.com exchange. When his actual inventory has deviated too far from this optimal level, the Market Maker needs to adjust his price to bring inventory back to desired levels. For example, if a Market Maker has too few cards in inventory, he needs to raise his price to a level that will attract more sellers into the market. In this way he can replenish his inventory back to optimal levels. Also, the market maker may change a card's price without any volume whatsoever, if his perception of future supply and demand changes.
- The Wrong Price: The Market Makers at thePit.com are some of the most experienced professionals in the industry. They are, however, human. Occasionally, due to an error or a misinterpretation of information, the Market Maker will make an incorrect price. He will learn of his mistake quickly, as account holders will flock to deal on the wrong quote. While thePit.com will honor some of these trades, the Market Maker will quickly correct his price to reflect the actual market.
ThePit understands that account holders will want to trade during hours when the Market makers are not active. During the After Hours Session, trades are executed through automated matching, which allows the account holders to trade virtually 24/7 (except for an hour each day for system maintenance). All holders in the middle of the market maker's spreads will be matched automatically, as long as there are no conflicts with the Minumum Order Quantity.
(During the After Hours Sessions, it is strongly recommended that the minimum order quantity be set to one to maximize the chances for execution). Likewise, during the After Hours Sessions, account holders are free to trade against the Market Maker's Buy it Now or Sell it Now prices, up to the available size being shown. If there is no longer an available quantity for the Buy it Now price (or Sell it Now price), the screen will show a price is Pending. The price of the card will be reset at the resumption of market maker supported trading during the next Live Session. While a card shows that one side of the price is pending, account holders are still free to trade on the other side of the price.
The athletes that comprise thePit1 exchange are both the marquee and emerging athletes in their respective sports. Hence, the following criteria are usually met:
- The athlete has captured considerable market share via widespread trading.
- The athlete has a card that has a considerably high market cap (PSA graded population multiplied by the price of the card).
- The (PSA) Population Report for each graded card is sufficient to support active trading.
thePit.com strives to list actively traded cards. Occasionally, however, due to a lack of account holder interest, it may become necessary to delist a card. Cards will be delisted if the management of thePit.com decide that there is not enough activity to support active market making.