Make a market defines as actions where dealers are willing to buy an investor’s asset at the quoted bid and ask price. If a brokerage do this, then they can fill the orders from the brokerage inventory. That way, they can fill the orders easier and faster.
How does It Work?
The ones who can do this is a market makers. They are the member firms of an exchange. These people purchase or sell securities at the prices shown on the exchange’s trading system.
They can come and adjust the quotes to purchase and sell, as well as, execute the orders. These people exist within the market in accordance to stock exchanges’ rules that have been approved by a securities regulators.
These people own the rights and responsibilities that vary by exchanges and the market.
Ways That Market Makers Work
A brokerage firm has to hold a disproportionately large amount of particular securities to create the market. That way, they can satisfy the high volume market orders at competitive prices in seconds.
These people keep the market liquid. Thus, they, at the same time, also promote the market’s efficiency.
The Facilitators of Market Liquidity
If the investors are selling their asset, then, these market makers hold the obligation to buy them, and vice versa. In other words, they have to take the opposite side of the trades happen in the market, at a point of time.
That obligation comes from their role to satisfy the market demand. That way, they also facilitate the circulation. For instance, in NASDAQ, relies on the market makers to create efficient trading.
The market makers make profit from their spread. They do not get profit from the price fluctuation of the assets’ prices. They should execute trades based on the trades within the market, not because what asset they think will go up.
