Stock trading can be very simple and fast. Your order in your broker can be executed within seconds. That is possible because we have market makers.
Without them, you will need days to find someone who is interested in buying or selling the exact number of shares of the exact company you want.
What does market makers do?
As their name suggests, they literally make markets for stocks. They are usually banks or brokerage companies. Market makers are ready to ask and bid prices in every second of the trading day.
They offer essential help for you. Imagine if you place a market order to sell your 1,000 shares of Disney, a market maker will buy that stock from you. They will do that, even when they do not have a buyer lined up.
The same process also happens whenever someone places a market order to buy shares of stock.
Without market makers, buying or selling stocks can be a time-consuming activity. There will be days until buyers and sellers matched with one another.
Consequently, the longer process will reduce the liquidity and also potentially increase the trading costs since entering and existing position will be more difficult.
It is important for the financial market to operate smoothly in order for investors and traders to prefer to buy and sell easily. Without market makers, there will be fewer transactions resulting in an overall market slowdown.
In the long run, that will also reduce the amount of money available for companies.
Also read: Stock Trading 101: Long Trade vs. Short Trade
Market makers also help maintain consistency with markets by continually quote prices and their volumes they want to buy and sell at.
In times of volatility, market makers willing to buy and sell at established prices in order to help maintain normalcy with the buying and selling process.
Without them, buyers will get difficulties to find a hot stock or sellers will also unable to sell stocks.
