-
Market Makers (Liquidity Providers) and the Bid-Ask Spread Explained in One Minute
Market makers tend to oftentimes be surrounded by a bit of an aura of mysticism in light of the fact that other market participants consider them all-knowing entities who can do no wrong.
Is that the case?
Most definitely not. Instead, why not look at market makers as liquidity providers so as to see them for what they actually are: yet another market participant, with pros as well as cons associated with their status.
In approximately one minute, this video explains what market makers are, why the liquidity they provide tends to be quite useful and what the (in)famous bid-ask spread is all about.
If you are new to trading/investing, all of this terminology might seem confusing but in true One Minute Economics fashion, I've explained these concepts in a way that leaves little room for ...
published: 13 Feb 2020
-
What is a Market Maker?
At IMC our Traders and Developers make markets by working together to create sophisticated computer algorithms which trade faster than any human ever could. See how IMC makes markets in this animated explainer.
published: 09 Dec 2019
-
Let's rethink emerging markets | VITO MARGIOTTA | TEDxBergamo
In this powerful talk and call for "thinking differently", Vito Margiotta addresses the audience his vision for a better understanding (and the facts) the emerging markets.
Vito Margiotta is a mobile entrepreneur, a former Google employee, a Singularity University alumni and the organizer of the conferences TEDxLecce and Mobile-Only Conf. He is the CEO of Seemba (goseemba.com | formerly Snapp), the first mobile business platform empowering SMBs in mobile-only economies to come online and to leverage on mobile services to grow their business. Vito is extremely passionate about the social impact of mobile technologies and was recently appointed to the Forbes 30 under 30 European Tech list of 2017 for his work in Africa, Latin America and Asia.
This talk was given at a TEDx event using ...
published: 19 Jun 2017
-
What Exactly Do Market Makers Do? (& How They Manipulate The Market)
Market makers are no doubt one of the most infamous participants in the market. Historically, retail investors weren’t that aware of market makers at all. However, the GameStop frenzy has made market makers more relevant than ever before. But what exactly do market makers even do? Well, market makers partner with an exchange and act as a buyer and seller for every security traded on the exchange. This way, market participants are easily able to liquidate or buy new shares at any time they want. Market makers make money through the small spread between the bid and ask price for each given security. While the concept of market makers was invented in good faith and market makers mostly benefit long-term investors, short-term investors often get screwed over by their psychological games. This ...
published: 06 Jun 2022
-
What is an Automated Market Maker? (Liquidity Pool Algorithm)
You might be asking what an automated market maker is. In this video, we explain how constant product automated market makers using a very simple story so you can understand how the algorithm of a liquidity pool works. That was a lot of big words, but here on Whiteboard Crypto, we hope that you understand it all by the end of watching this video!
Join our exclusive discord community:
https://discord.gg/D7hGbB5AuH
Explore More Whiteboard Crypto:
Facebook: @whiteboardcrypto
Instagram: @whitreboardcryptoteam
Website: www.whiteboardcrypto.com
published: 22 May 2021
-
Designated Market Maker
A designated market maker, or DMM, maintains fair and orderly markets for an assigned set of listed firms. This also helps improve market liquidity. The New York Stock Exchange created this position in 2008 to offer better service than electronic-only platforms. The DMM is a point of contact for the listed company, and provides them with information such as trader sentiment and who has been trading the stock.
published: 27 Apr 2019
-
What are 'market makers'? - MoneyWeek Investment Tutorials
Like this MoneyWeek Video? Want to find out more on market makers?
Go to: http://www.moneyweekvideos.com/what-are-market-makers/ now and you'll get free bonus material on this topic, plus a whole host of other videos.
Search our whole archive of useful MoneyWeek Videos, including:
· The six numbers every investor should know...
http://www.moneyweekvideos.com/six-numbers-every-investor-should-know/
· What is GDP?
http://www.moneyweekvideos.com/what-is-gdp/
· Why does Starbucks pay so little tax?
http://www.moneyweekvideos.com/why-does-starbucks-pay-so-little-tax/
· How capital gains tax works...
http://www.moneyweekvideos.com/how-capital-gains-tax-works/
· What is money laundering?
http://www.moneyweekvideos.com/what-is-money-laundering/
published: 10 Jan 2012
-
A 20-Year Veteran Reveals the World of Options Market Making
EP 002 QuantPy Insights Podcast | Anonymous Guest
Welcome back to the second episode of QuantPy Insights, where we dissect the complex world of quantitative finance and break it down for you!
📈 About This Episode:
Today, we have a very special guest who has spent over two decades in the fast-paced realm of options market making. We dig deep into the intricacies of market making, from how firms make their money to the challenges and opportunities that new quants face in this dynamic industry.
🔑 Key Takeaways:
- What is market making and how do firms profit from it?
- The ins and outs of trading, risk management, and portfolio optimization.
- Expert advice on how to differentiate yourself and make your mark in the market-making world.
🎯 Who Should Watch?
If you're a university student in...
published: 20 Oct 2023
-
What MARKET MAKERS DON'T Want You To Know 🤫 #broker
Here's how market makers stop you out. If you're trading with a market maker broker, you need to be prepared for regular stop hunting. Lots of beginner forex traders or stock traders are not aware of this when they are trading with a market maker broker and keeps wondering why they lose money. How market makers make money is by encouraging you to trade as often as possible and then also stop hunting people especially during high impact news. This is also one of the things that brokers don't want you to know
published: 02 Jun 2023
-
What is a Market Maker?
Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Market Maker”
A broker-dealer who is prepared to buy or sell a specific security — such as a bond or at least one round lot of a stock — at a publicly quoted price, is called a market maker in that security. Other brokers buy or sell specific securities through market makers, who may maintain inventories of those securities. There is often more than one market maker in a particular security, and they bid against each other, helping to keep the marketplace liquid. The Stock Market and the corporate and municipal bond markets are market maker markets. In contrast, on the floor of the New York Stock Exchange there's a single specialist to handle transactions in each security.
Mark...
published: 27 May 2016
1:50
Market Makers (Liquidity Providers) and the Bid-Ask Spread Explained in One Minute
Market makers tend to oftentimes be surrounded by a bit of an aura of mysticism in light of the fact that other market participants consider them all-knowing en...
Market makers tend to oftentimes be surrounded by a bit of an aura of mysticism in light of the fact that other market participants consider them all-knowing entities who can do no wrong.
Is that the case?
Most definitely not. Instead, why not look at market makers as liquidity providers so as to see them for what they actually are: yet another market participant, with pros as well as cons associated with their status.
In approximately one minute, this video explains what market makers are, why the liquidity they provide tends to be quite useful and what the (in)famous bid-ask spread is all about.
If you are new to trading/investing, all of this terminology might seem confusing but in true One Minute Economics fashion, I've explained these concepts in a way that leaves little room for interpretation.
After watching this video, you will understand why market makers are important actors in the ecosystem (yes, for primarily liquidity-related reasons), why knowing a thing or two about the bid-ask spread is recommended and... well, why you should care :)
https://wn.com/Market_Makers_(Liquidity_Providers)_And_The_Bid_Ask_Spread_Explained_In_One_Minute
Market makers tend to oftentimes be surrounded by a bit of an aura of mysticism in light of the fact that other market participants consider them all-knowing entities who can do no wrong.
Is that the case?
Most definitely not. Instead, why not look at market makers as liquidity providers so as to see them for what they actually are: yet another market participant, with pros as well as cons associated with their status.
In approximately one minute, this video explains what market makers are, why the liquidity they provide tends to be quite useful and what the (in)famous bid-ask spread is all about.
If you are new to trading/investing, all of this terminology might seem confusing but in true One Minute Economics fashion, I've explained these concepts in a way that leaves little room for interpretation.
After watching this video, you will understand why market makers are important actors in the ecosystem (yes, for primarily liquidity-related reasons), why knowing a thing or two about the bid-ask spread is recommended and... well, why you should care :)
- published: 13 Feb 2020
- views: 79067
2:16
What is a Market Maker?
At IMC our Traders and Developers make markets by working together to create sophisticated computer algorithms which trade faster than any human ever could. Se...
At IMC our Traders and Developers make markets by working together to create sophisticated computer algorithms which trade faster than any human ever could. See how IMC makes markets in this animated explainer.
https://wn.com/What_Is_A_Market_Maker
At IMC our Traders and Developers make markets by working together to create sophisticated computer algorithms which trade faster than any human ever could. See how IMC makes markets in this animated explainer.
- published: 09 Dec 2019
- views: 87735
12:50
Let's rethink emerging markets | VITO MARGIOTTA | TEDxBergamo
In this powerful talk and call for "thinking differently", Vito Margiotta addresses the audience his vision for a better understanding (and the facts) the emerg...
In this powerful talk and call for "thinking differently", Vito Margiotta addresses the audience his vision for a better understanding (and the facts) the emerging markets.
Vito Margiotta is a mobile entrepreneur, a former Google employee, a Singularity University alumni and the organizer of the conferences TEDxLecce and Mobile-Only Conf. He is the CEO of Seemba (goseemba.com | formerly Snapp), the first mobile business platform empowering SMBs in mobile-only economies to come online and to leverage on mobile services to grow their business. Vito is extremely passionate about the social impact of mobile technologies and was recently appointed to the Forbes 30 under 30 European Tech list of 2017 for his work in Africa, Latin America and Asia.
This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx
https://wn.com/Let's_Rethink_Emerging_Markets_|_Vito_Margiotta_|_Tedxbergamo
In this powerful talk and call for "thinking differently", Vito Margiotta addresses the audience his vision for a better understanding (and the facts) the emerging markets.
Vito Margiotta is a mobile entrepreneur, a former Google employee, a Singularity University alumni and the organizer of the conferences TEDxLecce and Mobile-Only Conf. He is the CEO of Seemba (goseemba.com | formerly Snapp), the first mobile business platform empowering SMBs in mobile-only economies to come online and to leverage on mobile services to grow their business. Vito is extremely passionate about the social impact of mobile technologies and was recently appointed to the Forbes 30 under 30 European Tech list of 2017 for his work in Africa, Latin America and Asia.
This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx
- published: 19 Jun 2017
- views: 12201
11:38
What Exactly Do Market Makers Do? (& How They Manipulate The Market)
Market makers are no doubt one of the most infamous participants in the market. Historically, retail investors weren’t that aware of market makers at all. Howev...
Market makers are no doubt one of the most infamous participants in the market. Historically, retail investors weren’t that aware of market makers at all. However, the GameStop frenzy has made market makers more relevant than ever before. But what exactly do market makers even do? Well, market makers partner with an exchange and act as a buyer and seller for every security traded on the exchange. This way, market participants are easily able to liquidate or buy new shares at any time they want. Market makers make money through the small spread between the bid and ask price for each given security. While the concept of market makers was invented in good faith and market makers mostly benefit long-term investors, short-term investors often get screwed over by their psychological games. This is one of the main reasons that it’s so hard to become a profitable trader. This video explains what exactly a market maker does and the purpose of market makers.
Earn Interest From The Government & Top Corporations:
(iOS App for US Residents)
https://www.silomarkets.com/waiting-list-page
Socials:
https://www.instagram.com/hariharan.jayakumar/
Discord Community:
https://discord.gg/SJUNWNt
Timestamps:
0:00 - Market Makers
1:02 - What Is A Market Maker?
3:13 - Making Money
5:31 - Manipulation Tactics
8:46 - Payment For Order Flow
Thumbnail Credits:
Aaron Kotowski - Forbes
https://bit.ly/398po4h
https://bit.ly/3MnKCZF
Resources:
https://pastebin.com/EqeqXURj
Disclaimer:
This video is not a solicitation or personal financial advice. All investing involves risk. Please do your own research.
https://www.silomarkets.com/disclosures
https://wn.com/What_Exactly_Do_Market_Makers_Do_(_How_They_Manipulate_The_Market)
Market makers are no doubt one of the most infamous participants in the market. Historically, retail investors weren’t that aware of market makers at all. However, the GameStop frenzy has made market makers more relevant than ever before. But what exactly do market makers even do? Well, market makers partner with an exchange and act as a buyer and seller for every security traded on the exchange. This way, market participants are easily able to liquidate or buy new shares at any time they want. Market makers make money through the small spread between the bid and ask price for each given security. While the concept of market makers was invented in good faith and market makers mostly benefit long-term investors, short-term investors often get screwed over by their psychological games. This is one of the main reasons that it’s so hard to become a profitable trader. This video explains what exactly a market maker does and the purpose of market makers.
Earn Interest From The Government & Top Corporations:
(iOS App for US Residents)
https://www.silomarkets.com/waiting-list-page
Socials:
https://www.instagram.com/hariharan.jayakumar/
Discord Community:
https://discord.gg/SJUNWNt
Timestamps:
0:00 - Market Makers
1:02 - What Is A Market Maker?
3:13 - Making Money
5:31 - Manipulation Tactics
8:46 - Payment For Order Flow
Thumbnail Credits:
Aaron Kotowski - Forbes
https://bit.ly/398po4h
https://bit.ly/3MnKCZF
Resources:
https://pastebin.com/EqeqXURj
Disclaimer:
This video is not a solicitation or personal financial advice. All investing involves risk. Please do your own research.
https://www.silomarkets.com/disclosures
- published: 06 Jun 2022
- views: 94038
10:25
What is an Automated Market Maker? (Liquidity Pool Algorithm)
You might be asking what an automated market maker is. In this video, we explain how constant product automated market makers using a very simple story so you c...
You might be asking what an automated market maker is. In this video, we explain how constant product automated market makers using a very simple story so you can understand how the algorithm of a liquidity pool works. That was a lot of big words, but here on Whiteboard Crypto, we hope that you understand it all by the end of watching this video!
Join our exclusive discord community:
https://discord.gg/D7hGbB5AuH
Explore More Whiteboard Crypto:
Facebook: @whiteboardcrypto
Instagram: @whitreboardcryptoteam
Website: www.whiteboardcrypto.com
https://wn.com/What_Is_An_Automated_Market_Maker_(Liquidity_Pool_Algorithm)
You might be asking what an automated market maker is. In this video, we explain how constant product automated market makers using a very simple story so you can understand how the algorithm of a liquidity pool works. That was a lot of big words, but here on Whiteboard Crypto, we hope that you understand it all by the end of watching this video!
Join our exclusive discord community:
https://discord.gg/D7hGbB5AuH
Explore More Whiteboard Crypto:
Facebook: @whiteboardcrypto
Instagram: @whitreboardcryptoteam
Website: www.whiteboardcrypto.com
- published: 22 May 2021
- views: 352568
2:13
Designated Market Maker
A designated market maker, or DMM, maintains fair and orderly markets for an assigned set of listed firms. This also helps improve market liquidity. The New Yor...
A designated market maker, or DMM, maintains fair and orderly markets for an assigned set of listed firms. This also helps improve market liquidity. The New York Stock Exchange created this position in 2008 to offer better service than electronic-only platforms. The DMM is a point of contact for the listed company, and provides them with information such as trader sentiment and who has been trading the stock.
https://wn.com/Designated_Market_Maker
A designated market maker, or DMM, maintains fair and orderly markets for an assigned set of listed firms. This also helps improve market liquidity. The New York Stock Exchange created this position in 2008 to offer better service than electronic-only platforms. The DMM is a point of contact for the listed company, and provides them with information such as trader sentiment and who has been trading the stock.
- published: 27 Apr 2019
- views: 5357
8:13
What are 'market makers'? - MoneyWeek Investment Tutorials
Like this MoneyWeek Video? Want to find out more on market makers?
Go to: http://www.moneyweekvideos.com/what-are-market-makers/ now and you'll get free bonus m...
Like this MoneyWeek Video? Want to find out more on market makers?
Go to: http://www.moneyweekvideos.com/what-are-market-makers/ now and you'll get free bonus material on this topic, plus a whole host of other videos.
Search our whole archive of useful MoneyWeek Videos, including:
· The six numbers every investor should know...
http://www.moneyweekvideos.com/six-numbers-every-investor-should-know/
· What is GDP?
http://www.moneyweekvideos.com/what-is-gdp/
· Why does Starbucks pay so little tax?
http://www.moneyweekvideos.com/why-does-starbucks-pay-so-little-tax/
· How capital gains tax works...
http://www.moneyweekvideos.com/how-capital-gains-tax-works/
· What is money laundering?
http://www.moneyweekvideos.com/what-is-money-laundering/
https://wn.com/What_Are_'Market_Makers'_Moneyweek_Investment_Tutorials
Like this MoneyWeek Video? Want to find out more on market makers?
Go to: http://www.moneyweekvideos.com/what-are-market-makers/ now and you'll get free bonus material on this topic, plus a whole host of other videos.
Search our whole archive of useful MoneyWeek Videos, including:
· The six numbers every investor should know...
http://www.moneyweekvideos.com/six-numbers-every-investor-should-know/
· What is GDP?
http://www.moneyweekvideos.com/what-is-gdp/
· Why does Starbucks pay so little tax?
http://www.moneyweekvideos.com/why-does-starbucks-pay-so-little-tax/
· How capital gains tax works...
http://www.moneyweekvideos.com/how-capital-gains-tax-works/
· What is money laundering?
http://www.moneyweekvideos.com/what-is-money-laundering/
- published: 10 Jan 2012
- views: 254003
52:29
A 20-Year Veteran Reveals the World of Options Market Making
EP 002 QuantPy Insights Podcast | Anonymous Guest
Welcome back to the second episode of QuantPy Insights, where we dissect the complex world of quantitative fi...
EP 002 QuantPy Insights Podcast | Anonymous Guest
Welcome back to the second episode of QuantPy Insights, where we dissect the complex world of quantitative finance and break it down for you!
📈 About This Episode:
Today, we have a very special guest who has spent over two decades in the fast-paced realm of options market making. We dig deep into the intricacies of market making, from how firms make their money to the challenges and opportunities that new quants face in this dynamic industry.
🔑 Key Takeaways:
- What is market making and how do firms profit from it?
- The ins and outs of trading, risk management, and portfolio optimization.
- Expert advice on how to differentiate yourself and make your mark in the market-making world.
🎯 Who Should Watch?
If you're a university student intrigued by a career in quantitative finance, or a seasoned quant looking to diversify your skill set and advance your career, this episode is for you!
★ ★ QuantPy GitHub ★ ★
Collection of resources used on QuantPy YouTube channel. https://github.com/thequantpy
★ ★ Discord Community ★ ★
Join a small niche community of like-minded quants on discord. https://discord.com/invite/aY2Af4CxHP
★ ★ Support our Patreon Community ★ ★
Get access to Jupyter Notebooks that can run in the browser without downloading python.
https://www.patreon.com/quantpy
★ ★ ThetaData API ★ ★
ThetaData's API provides both realtime and historical options data for end-of-day, and intraday trades and quotes. Use coupon 'QPY1' to receive 20% off on your first month.
https://www.thetadata.net/
★ ★ ONLINE TUTORIALS ★ ★
WEBSITE: https://quantpy.com.au
★ ★ CONTACT US ★ ★
EMAIL: pythonforquants@gmail.com
Disclaimer: All ideas, opinions, recommendations and/or forecasts, expressed or implied in this content, are for informational and educational purposes only and should not be construed as financial product advice or an inducement or instruction to invest, trade, and/or speculate in the markets. Any action or refraining from action; investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied in this content, are committed at your own risk an consequence, financial or otherwise. As an affiliate of ThetaData, QuantPy Pty Ltd is compensated for any purchases made through the link provided in this description.
https://wn.com/A_20_Year_Veteran_Reveals_The_World_Of_Options_Market_Making
EP 002 QuantPy Insights Podcast | Anonymous Guest
Welcome back to the second episode of QuantPy Insights, where we dissect the complex world of quantitative finance and break it down for you!
📈 About This Episode:
Today, we have a very special guest who has spent over two decades in the fast-paced realm of options market making. We dig deep into the intricacies of market making, from how firms make their money to the challenges and opportunities that new quants face in this dynamic industry.
🔑 Key Takeaways:
- What is market making and how do firms profit from it?
- The ins and outs of trading, risk management, and portfolio optimization.
- Expert advice on how to differentiate yourself and make your mark in the market-making world.
🎯 Who Should Watch?
If you're a university student intrigued by a career in quantitative finance, or a seasoned quant looking to diversify your skill set and advance your career, this episode is for you!
★ ★ QuantPy GitHub ★ ★
Collection of resources used on QuantPy YouTube channel. https://github.com/thequantpy
★ ★ Discord Community ★ ★
Join a small niche community of like-minded quants on discord. https://discord.com/invite/aY2Af4CxHP
★ ★ Support our Patreon Community ★ ★
Get access to Jupyter Notebooks that can run in the browser without downloading python.
https://www.patreon.com/quantpy
★ ★ ThetaData API ★ ★
ThetaData's API provides both realtime and historical options data for end-of-day, and intraday trades and quotes. Use coupon 'QPY1' to receive 20% off on your first month.
https://www.thetadata.net/
★ ★ ONLINE TUTORIALS ★ ★
WEBSITE: https://quantpy.com.au
★ ★ CONTACT US ★ ★
EMAIL: pythonforquants@gmail.com
Disclaimer: All ideas, opinions, recommendations and/or forecasts, expressed or implied in this content, are for informational and educational purposes only and should not be construed as financial product advice or an inducement or instruction to invest, trade, and/or speculate in the markets. Any action or refraining from action; investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied in this content, are committed at your own risk an consequence, financial or otherwise. As an affiliate of ThetaData, QuantPy Pty Ltd is compensated for any purchases made through the link provided in this description.
- published: 20 Oct 2023
- views: 18244
0:31
What MARKET MAKERS DON'T Want You To Know 🤫 #broker
Here's how market makers stop you out. If you're trading with a market maker broker, you need to be prepared for regular stop hunting. Lots of beginner forex tr...
Here's how market makers stop you out. If you're trading with a market maker broker, you need to be prepared for regular stop hunting. Lots of beginner forex traders or stock traders are not aware of this when they are trading with a market maker broker and keeps wondering why they lose money. How market makers make money is by encouraging you to trade as often as possible and then also stop hunting people especially during high impact news. This is also one of the things that brokers don't want you to know
https://wn.com/What_Market_Makers_Don'T_Want_You_To_Know_🤫_Broker
Here's how market makers stop you out. If you're trading with a market maker broker, you need to be prepared for regular stop hunting. Lots of beginner forex traders or stock traders are not aware of this when they are trading with a market maker broker and keeps wondering why they lose money. How market makers make money is by encouraging you to trade as often as possible and then also stop hunting people especially during high impact news. This is also one of the things that brokers don't want you to know
- published: 02 Jun 2023
- views: 21991
1:58
What is a Market Maker?
Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Market Maker”
A broker-dealer who is prepared ...
Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Market Maker”
A broker-dealer who is prepared to buy or sell a specific security — such as a bond or at least one round lot of a stock — at a publicly quoted price, is called a market maker in that security. Other brokers buy or sell specific securities through market makers, who may maintain inventories of those securities. There is often more than one market maker in a particular security, and they bid against each other, helping to keep the marketplace liquid. The Stock Market and the corporate and municipal bond markets are market maker markets. In contrast, on the floor of the New York Stock Exchange there's a single specialist to handle transactions in each security.
Market Makers must be compensated for the risk they take; what if he buys your shares in IBM then IBM's stock price begins to fall before a willing buyer has purchased the shares? To prevent this, the market maker maintains a spread on each stock he covers. The market maker may purchase your shares of IBM from you for $100 each the ask price and then offer to sell them to a buyer at $100.05 the bid price. The difference between the ask and bid price is only $.05, but by trading millions of shares a day, he's managed to pocket a significant chunk of change to offset his risk.
In contrast to conventional brokers, marker makers assume a high level of risk because of the high number of units they hold their inventory. Market makers are entrusted with promoting market efficiency by keeping markets liquid. To ensure impartiality for the benefit of their clients, brokerage houses who act as market makers are legally required to separate their market making activities from their brokerage sales operations.
By Barry Norman, Investors Trading Academy - ITA
https://wn.com/What_Is_A_Market_Maker
Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Market Maker”
A broker-dealer who is prepared to buy or sell a specific security — such as a bond or at least one round lot of a stock — at a publicly quoted price, is called a market maker in that security. Other brokers buy or sell specific securities through market makers, who may maintain inventories of those securities. There is often more than one market maker in a particular security, and they bid against each other, helping to keep the marketplace liquid. The Stock Market and the corporate and municipal bond markets are market maker markets. In contrast, on the floor of the New York Stock Exchange there's a single specialist to handle transactions in each security.
Market Makers must be compensated for the risk they take; what if he buys your shares in IBM then IBM's stock price begins to fall before a willing buyer has purchased the shares? To prevent this, the market maker maintains a spread on each stock he covers. The market maker may purchase your shares of IBM from you for $100 each the ask price and then offer to sell them to a buyer at $100.05 the bid price. The difference between the ask and bid price is only $.05, but by trading millions of shares a day, he's managed to pocket a significant chunk of change to offset his risk.
In contrast to conventional brokers, marker makers assume a high level of risk because of the high number of units they hold their inventory. Market makers are entrusted with promoting market efficiency by keeping markets liquid. To ensure impartiality for the benefit of their clients, brokerage houses who act as market makers are legally required to separate their market making activities from their brokerage sales operations.
By Barry Norman, Investors Trading Academy - ITA
- published: 27 May 2016
- views: 89086