Friday, July 19, 2024

Market Maker

In this article, We learn about “Market Maker “.Let’s Go!

A A Market Maker is a financial intermediary that stands ready to buy and sell by continuously quoting bid and ask prices that are accessible to other traders or registered participants of the trading platform. assets.

A market maker is an individual or institution that buys and sells large amounts of a specific asset to facilitate liquidity and ensure the smooth functioning of financial markets.

Individuals can become market makers, but market makers are more commonly large institutions due to the amount of each asset required to achieve the required trading volume.

In fact, a market maker, also known as Liquidity Provider, refers to a company or individual who quotes the buying and selling prices for any commodity or financial product in order to profit from the buying price/ Ask about the spread.

Market makers will own a certain amount of the asset (or assets) they trade.

Market makers can create a simple way to trade by displaying bid and ask quotes and quickly executing trades at those prices.

They are most common in stock trading, but can work in other markets as well.

If we take the stock market as an example, market makers can only sell the number of shares they can get.

However, they are obliged to meet the normal market size (NMS), which is a minimum number of securities, which varies from stock to stock.

The meaning of market maker comes from the practice of setting market prices at the level required to balance supply and demand.

When the market fluctuates, market makers must remain stable and continue to be responsible for market performance, which exposes them to significant risks.

This is why market makers make money by maintaining the spreads on the assets they allow you to trade, to compensate for the risk of buying an asset that may lose value.

How do market makers make money?

To compensate for the risk of purchasing an asset that may lose value, market makers maintain spreads on the assets they allow you to trade.

For example, a market maker might buy 100 shares from you at $10 per share (ask price) and then sell them to the buyer at $10.02 (bid price).

While this is only a $0.02 difference, on high trading volumes the profits quickly add up.

If you want to learn more foreign exchange trading knowledge, please click: Trading Education.

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