facebookI'm just starting to read up on finance. I'm confused about market makers. What is their purpose or role and how do they perform their role? - Seedly

Anonymous

18 Apr 2019

āˆ™

General Investing

I'm just starting to read up on finance. I'm confused about market makers. What is their purpose or role and how do they perform their role?

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A market maker is an entity that buys and sells securities at prices it displays in an exchangeā€™s trading system for its own account which are calledĀ principal tradesĀ and for customer accounts which are called agency trades. They play an imperative role on the exchange, enhancing the stock's liquidity so everyday small retail investors like ourselves can buy them.

They must maintain continuous two-sided quotes (bid and ask) within a predefined spread. A market is created when the designated market maker quotes bids and offers over a period of time. They ensure there is a buyer for every sell order and a seller for every buy order at any time.

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