WHAT IS ‘Taking the Street’
Taking the Street is the practice of quickly buying a dominant position in one stock with the intention of selling the stock, often to the same institutions from which it was bought, at a profit.
BREAKING DOWN ‘Taking the Street’
Taking the Street is a practice which might appear to be an effective low-risk, short-term trading strategy. An institution with deep pockets and sophisticated market knowledge, often a hedge fund, knows that market makers need to maintain an inventory of a given stock. Market makers, sometimes referred to as specialists on the NYSE, rely on their own inventories to handle trades for individual and institutional traders alike. This inventory is crucial to the business model of a market maker – without shares on hand, the market maker is at the mercy of the market to fill trades.
Taking the Street relies on three assumptions: First is the assumption that the market makers will be forced to replenish their inventories by buying shares back from the firm attempting to take the street. If another institution also holds a significant position in the stock, the market maker should be able to rebuild its inventory at a lower price. The second assumption is that other market forces, such as negative financial results or short selling , will not intervene to drive the share price down. Finally, the firm seeking to take the street must have the resources to quickly buy a very large position in that stock so that it does not drive its own purchase price high enough to undermine its own strategy.
The strategy is more likely to succeed if the stock is lightly traded and has fewer market makers. Under these conditions, the firm seeking to take the street is in a position of greater market power to both amass a dominant position and to force market makers to replenish their inventories from the street taker.
Taking the Street vs Cornering the Market
These terms are sometimes confused and involve similar principles but differ in timing and, sometimes, in legality. Both rely on amassing a market position which allows an institution to exert control over price fluctuations. Taking the street generally occurs in a very short time period, often the same day of trading. Cornering the market usually describes a longer-term effort. It is more likely to involve market manipulation and many case studies exist in which this manipulation has caught the attention of regulators. A classic example of cornering the market on U.S. Treasury bonds took place in the 1990s, and many other cases have taken place in global commodities markets.