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It's all liquidity. Liquidity can be categorized into: (1) displayed liquidity, what you see on the book (2) hidden liquidity that is ready to trigger, like system-created refresh bids/offers, true iceberg orders, and stop orders (3) "sideline" money that will enter the market, such as buyers waiting for favorable prices, and the like... it's more like "potential liquidity" as there's no flow yet.
If you want to buy a level lower than the current market and have a large order to fill, you need liquidity on the other side of your order. Whether you're bidding and preventing the market from falling from a wave of sell stops, or whether you are taking offers that have presented themselves at that lower level after some initial selling, you need liquidity. You may be providing it, if you're bid, but you still need orders on the other side, and a lot of them.
Think of it like this -- very often market makers are the counterparty to your trade. But sometimes they're not. When you get a wave of selling, and big buyers (pension funds) want to buy at a level, they can certainly bid and be on the other side of other institutional selling or retail selling. A MM does not have to be the counterparty. If that were true, MMs would be the only liquidity providers, and everyone else would be liquidity takers, and that just isn't the case.
Just the other day I heard someone talk about this. Here you go:
(embedded video does not honor the timestamp, so just copy/paste)
(Quote from your Post) (Basically,why arent people making millions by trading a large amount of contracts?)
Answer: You can also lose millions.
Taking into consideration commissions, and having to [pay the spread] if the market moves against you,
you can easily lose millions, and many, many more millions in a fast market.
Pro traders usually build a position, with their average price moving up/down based on their thesis.
Whether they scale into a position is mostly a function of the time frame of the trade. If the trade is to be longer term, then it's no big deal to add lower or higher. If the trade is to be short term, there's not a lot of opportunity to add higher, so they put the full size on at the outset, or at least most of it. Now, as you say, if it moves in their direction, a short term trader may certainly add, but they're not building a position so much as pressing an advantage which is working.
I'm not talking about fund managers who are managing billions for investors, whether that be governments, pension funds, or just long term investors. These traders, who would be deemed "institutional," certainly do have to build a position. However, pro traders do not move enough money, generally, to worry about adverse price impact. They trade liquid products and are able to get near full size in a few clips. For example, if I'm moving 500 ES, I may have to get it in 3 orders, but I certainly don't need to "scale in" as someone would who is worried about moving the market too much.
In fact, the good pro traders I've traded next to in the past tended to go pretty bit at the outset. Why? Because they see the trade and the opportunity, and need to put on the risk. They don't hesitate really, because their entire purpose is to put on risk when they have an advantage.
