| A market maker is a stock brokerage firm,
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| | (the price they offer to sell it for).
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| which is a member of FINRA (Financial
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| | They sell to and buy from their clients
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| Industry Regulatory Authority), formerly
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| | in foreign markets, where most deal are
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| known as the NASD (National Association
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| | done over-the-counter. By providing extra
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| of Securities Dealers).
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| | liquidity, this reduces the cost of
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| Market makers quote buy and sell prices
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| | transactions for clients and makes the
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| for financial commodities, making a
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| | trades worthwhile. If not for the market
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| profit on the difference between the bid
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| | maker, they would have to accept a low
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| and the offer spread. The market maker
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| | price for the stock or not be able to
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| gets compensated for providing liquidity
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| | trade it at all.
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| in the market. A market maker is also
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| | In the US, the AMEX and NYSE have a
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| involved with rule 15c211, in that a
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| | single exchange member, also known as a
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| 15c211 is filed for a market maker to
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| | stock "specialist", who acts as the
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| trade any given security.
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| | market maker for a given security. The
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| When you buy or sell a stock or place an
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| | specialist provides a required amount of
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| order with your broker, the transaction
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| | liquidity to the market, prevents excess
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| takes place within seconds. The process
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| | volatility, and takes the other side of
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| is quite simple for the buyer or seller,
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| | trades when there are buy and sell
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| but the action takes place behind the
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| | imbalances in customer orders. Therefore
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| scenes where the market makers line up
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| | the specialist is privy to trade
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| the buyer with the seller and vice versa.
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| | execution advantages.
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| Without a market maker, it's very
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| | On the NASDAQ and other US exchanges,
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| unlikely that you will be able to find a
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| | there are many competing market makers in
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| buyer or a seller for an exact number of
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| | any given security. They are obligated to
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| shares at any given time. The market
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| | buy and sell at prices matching their
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| maker will buy a large number of shares
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| | displayed bids and offers, and do not
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| from a seller, even when they don't have
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| | receive the advantages of a specialist.
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| another buyer lined up. By doing this,
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| | Proponents of the official market maker
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| they take on a huge risk. If the value of
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| | system believe that market makers add to
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| the stock falls while the stock is in
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| | the liquidity of the stock and
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| their hands, they could lose a
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| | commodities markets by taking assuming
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| significant amount of money.
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| | risk and taking short or long positions,
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| To prevent this from happening, market
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| | to hopefully turn a profit. On the London
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| makers maintain a spread on every stock
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| | Stock Exchange, market makers can always
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| they buy. There may only be a $0.05
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| | buy and sell stock. Each stock always has
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| difference between the ask price (the
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| | at least two market makers that are
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| price they buy it for) and the bid price
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| | obliged to deal.
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