OK so I'm generally the first person to say that trading is a terrible way to make money for 97% of people, so I do see a bit of irony in me posting a thread about being a market maker. Anyway... So I have been acquiring shares in a small cap company over the last 6 months, and like most small cap companies it isn't very liquid, and at times bid and ask spreads can get quite high, up to 5 - 10%. So I can't help but feel like there is a bit of an opportunity here and I'm kind of hoping someone can highlight me to the pitfalls of being a market maker and talk me out of it so I can keep telling people trading is just a way to lose money for 95%of people... Anyway I'll throw a hypothetical scenario at you guys so you can let me know what you think. OK as mentioned, I have been acquiring shares in a company, for simplicities sake let's say I have 100,000 so far and they have been acquired at an average cost of $0.45 over the last months. Now I'm acquiring this company because I think it's good value and I do have intention of buying/holding more stock in it if subsequent news and reports are inline with projections and let's say, if those projections are realised that I think this company's fair value is around $1.25. So what I'm trying to say is that my first focus is to be accumulating shares in this company so I don't mind if I'm playing both sides of the trade, ie both buying more from people looking to liquidate as well as and being a market maker as I procure more shares. Now let say the last batch of shares I acquired was yesterday at $0.49 with a limit order, but the share has been trending up but of late has been around the $0.50 mark. Now let's say after fulfilling my limit order yesterday at $0.49 the current bid is $0.48 and the ask is $0.53. So by my logic given I just procured 10,000 share yesterday, if I was to place a sell order for $0.525 and it was fulfilled the profit I would make would be $0.525 - $0.49 x 10,000 - brokerage fee (2 x $25) which would equal $300 profit for doing essentially being willing to buy and sell with limits instead of at market. And at the same time I can place a $0.485 buy order in case anyone is looking to liquidate their holdings so at the same time I could start accumulating shares in this company (which is what I want to do anyway) at a lower price than market. Is this logic flawed in any way? I know it's not quite that easy as that and that the market can move against me, in that if I set a buy price at say $0.48 then the the order is fulfilled and then the price continues to move lower to say $0.45 the sell order I had a $0.525 might quickly become unrealistic as people begin to offer to sell for lower and supersede my offer. Also I know that this sort of strategy requires patience and won't be a big money spinner, ie in this particular stock there are normally only 1 or 2 trades a day max, and I would say trades are only made 1 in every 2 days, with the average volume being around 5,000 to 10,000. With that said, my logic is that I'm "somewhat" protected because I do actually want to acquire the company over time so accumulating stock by setting bid limits should help me dollar cost average in, and I can't lose money if I sell the stock higher than what I bought it for by offering a sell order at a limit. If the price falls I lower my average cost of acquisition, if the price rises I'm selling for a profit, plus my remaining shares have gone up in value. Right? Anyway moving onto some questions I have: So what are the downsides of this strategy that I'm not seeing? If I was to do something like this does anyone have any tips? What's most cost effective way of implementing this strategy? I'm assuming brokerage is the main killer. Also what happens when only half an order is fulfilled and the market moves, ie if I place a buy order for 10,000 shares and someone only sells 2000 of them and then the rest of the limit order is never fulfilled? What happens and how is brokerage charged in this case? Also do lots of people do this sort of thing for low cap, illiquid stocks? If not, why not? What other questions should I be asking? Thanks in advance.