Role Of A Market Maker
a market maker is a firm or individual that stands ready to buy and sell a particular security throughout the trading session to maintain liquidity and a fair and orderly market ? security. sometimes, no one may be selling a stock ? interested in buying or no one may be biting on a stock ? trying to sell. this is where the market maker comes in by making a market or making bids and offers to accommodate orders that can not be matched in the market. a bid ask spread is maintained by the market maker and is the difference in price between ? and sell the security. for example, the market bid to ask for kay kay stores is $50.00 to $50.05. the market maker decides to buy 1,000 shares from ? for $5.00 per share. now, he has 1,000 shares of kay kay stores sitting in his account and he hopes to get a buyer real soon. the market maker offers to sell his shares for $5.04 each, thus creating or making a new market. because his offer is now the best offer, he attracts buyer ?, who is willing to purchase 1,000 shares. the bid ask spread of $0.04 represents the market makers profit of $40. by buying low and selling high, market makers capture profits through these relatively small spreads. the market maker mentioned in the example can lose money, if the stock value drops below $50 by the time a buyer emerges. in this case, the market maker may have to sell at price below which he purchased kay kay stores stock. the market maker is compensated for taking on risks like this by charging commissions and fees. market makers serve an important role in the financial markets, as they help to reduce liquidity risk and facilitate the pace at which participants can enter or exit the market.
- market maker・・・マーケットメイカー
- stand ready to・・・～する用意がいつもできている