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Market Makers

A market maker is a stock brokerage firm that is a listed member of FINRA (Financial Industry Regulatory Authority), formerly known the National Association of Securities Dealers (NASD), that provides a buy and sell price on a given inventory of stocks, on a regular and predictable basis, and at a publicly displayed and quoted price.

The act of providing a way or mechanism for all interested parties to buy or sell securities, creates a market, therefore the term Market Maker. Of course, the profit motive of the market maker is to realize gains from the bid and offer spread. Since the market maker firm accepts the risk of holding securities that could lose value before they are sold, the gains realized from the spread is their reward.

In the United States there are many market maker firms, about 2,000 at last count, that service the needs of the stock market. Many USA-based exchanges, such as the NYSE (New York Stock Exchange) and the American Stock Exchange (AMEX) have specialist market makers that officially regulate the trading of particular stocks or securities. Other exchanges, such as the NASDAQ (National Association of Securities Dealers Automated Quotations), have over 500 competing market makers with posted buy and sell prices to provide their client's order flow for any number of given securities.

Market makers provide for the efficient flow of the markets by providing the underlying liquidity for buy and sell transactions, infusing capital into the markets to provide the supporting stability needed for the orderly execution of the markets. Market makers give quotes on buy and sell prices for financial stocks and commodities, making a profit on the bid/offer spread. Market makers are compensated by providing liquidity in the market.

It would be extremely time consuming and next to impossible for buyers and sellers of securities to participate in transactions without the services of a market maker. Since market maker firms take a very big risk that the securities they introduce into inventory could drop in value before they can find a buyer, they make a profit from the buy and sell spread. The fact that they take such a huge risk, and could lose a large amount of capital, inspires the profits accrued by their valued services and keeps the markets operating smoothly.

Needless to say, friends and promoters of the market maker method feel that the added liquidity, the lesser volatility, and the orderly operation of the market maker system is a plus for the market in general.

Market Maker News & Blog

Market Maker 2.0

October 12, 2012

Traditionally market makers have been defined as a broker-dealer firms who take on the risk of holding a certain number of shares of stock and setting the value for the purpose of trading them. Market makers would give quotes to investors willing to purchase a specific minimum number of shares, thus making a market for said shares. Investors put a certain degree of trust in the judgment of market makers knowing they only take on stocks in which they have a degree of confidence in.

However since the advancement of the digital age and electronic trading there has been a re-making of the market maker arena. The exclusive pricing knowledge held by traditional quote-driven market makers is now available to traders via order-driven market makers. Now there are entire firms who engage solely in computerized order-driven trading. While they are less personal than the traditional market makers they provide virtually instantaneous trades and access to the full bid/offer spread.

There are merits to be found in both systems, certainly the increased transparency of the supply and demand of securities has created high-frequency trading and leveled the playing field to a degree. However there is still something to be said for the pricing stability and predictable liquidity of the more traditional market maker. The key is to integrate them into a personalized trading strategy that relies on the best of each approach.

 

What does a Market Market Maker do?

September 21, 2012

We offer a comprehensive look at market makers on this page but many people still ask us; what does a market maker do? How do they create a market for a company’s stocks? Good questions.

A market maker is a broker-dealer firm that takes on the risk of holding shares of stock then quotes the buy and sell rate with the intention of matching a buyer and seller based on those quotes. By having a personal stake in the process a market maker is motivated to move securities, but it also assures they only take on stocks in which they see real potential.

It is by providing the means to buy and sell, coupled with their confidence in the stock by holding a specific number of shares that helps a market maker create a market for the stocks.
On a larger scale the instant, automated nature of market maker transactions in both the quoting of a public buy and sell price and offering a number of shares facilitate client order flow.

Most often the market maker sells from their own inventory closing a deal in just seconds, hopefully for a profit in the bid/offer spread. Market makers help the markets operate smoothly and efficiently.
We have a market maker directory so if you are looking for market makers to file a Securities And Exchange Commission Form 15c211 we have a list of market makers that file 15c211's for a company that wants to become a public company.

Virtu Financial Services Market Maker

September 18, 2012

Virtu Financial LLC is known as one of the most active traders of stocks, commodities and other securities in both the US and Europe. Their latest acquisition is the market maker division of Nyenburgh Holding BV located in Amsterdam, the Netherlands. Virtu is based in New York but with this deal they strengthen and expand their areas of influence in the European exchange-traded funds or ETF markets. Virtu inherits ongoing relationships with ETF issuers, instruments buyers and sellers including those of pensions and hedge funds.

Most ETF trading on European markets is on over-the-counter transactions. However new rule changes now move toward the US model where the majority of trading is through stock exchanges. This has created an opening for high-speed trading firms such as Virtu and Getco LLC to grab a bigger piece of the market makers pie.
 

 

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