Market Makers - What is a market maker and why are they necessary? A market maker is a firm, stock brokerage, who is a member of FINRA (Financial Industry Regulatory Authority), formerly known as the NASD (National Association of Securities Dealers).
Market makers quote buying and selling prices of financial products, make a profit on the difference between the bid and offer spread. The market maker is compensated for providing liquidity in the market. A market maker is also involved in Article 15c211, 15c211 as a trademark is a market maker for trading in the security given.
When you buy or sell a stock or place an order with your broker, the transaction takes place in a few seconds. The process is fairly simple for the buyer or seller, but the action takes place behind the scenes where the market makers line up the buyer with the seller and vice versa.
Without a market maker, it is very unlikely that you will be able to find a buyer or a seller for the exact number of shares at a given time. The market maker will buy a large number of shares from a seller, even when they do not have another buyer lined up. In doing so, they take a huge risk. If the stock value falls, while the stock is in their hands, they could lose a large sum of money.
To avoid this, the market makers to maintain a broadcast on all the shares they buy. It can be $ 0.05 difference between the sale price (the price they purchase) and the offer price (the price they offer for sale).
They sell and buy from their customers in foreign markets, where most are made to treat OTC. By providing additional liquidity, reducing transaction costs for customers and makes the useful arts. If not for the market maker, they will accept a low price for the stock or not being able to trade at all.
In the U.S., the Amex and NYSE have a single exchange member, also known as a stock of "specialist" who acts as market maker for a given title. The specialist provides a necessary amount of market liquidity, prevent excessive volatility, and takes the other side of trades when there are imbalances in buy and sell orders from customers. Therefore, the specialist is private trade performance benefits.
On the NASDAQ and other exchanges in the United States, there is much competition in the market makers of the guarantee. They are forced to buy and sell at prices equal to their bids and offers posted, and do not receive the benefits of a specialist.
Supporters of the system of market makers believe that the official market makers add liquidity to the stock and commodity markets by taking assuming the risks and take long or short positions in hopes of making a profit. On the London Stock Exchange, market makers can still buy and sell shares. Each fellow has always at least two market makers who are forced to deal.
Posted on February 5, 2010.
