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HOW DO MARKET MAKERS OPERATE?

April 26, 2017makers market operate

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HOW DO MARKET MAKERS OPERATE?

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A broker or dealer “makes a market” by buying and selling certain securities. Each market-making firm maintains an inventory of its chosen securities and stands ready at any time during trading hours to buy or sell the securities in which it specializes. Trading takes place in round lots of 100 shares of stock or $1,000 par value for bonds. Market makers also publish interdealer quotes. The quotes consist of two components: • One is the bid price, the highest price the dealer is willing to pay for the security. • The other is the ask price, the lowest price for which the dealer is willing to sell it.