The role of market makers

 

A market maker is a financial institution or individual that provides liquidity to a financial market by standing ready to buy and sell securities or other financial instruments. Market makers facilitate trade by quoting bid and ask prices at which they are willing to buy and sell the instruments they make a market in.

In an exchange-traded market, market makers are typically required to maintain a certain level of liquidity and to quote firm bid and ask prices within a specified percentage of the current market price. They are also required to make a minimum number of quotes and to maintain a certain level of activity in the market.

The role of market makers is to provide liquidity to the market by enabling traders to buy and sell securities or other financial instruments when there may not be enough supply or demand from other traders. This helps to ensure that the market is efficient and that prices reflect the underlying value of the securities or instruments being traded.

Overall, market makers play an important role in financial markets by providing liquidity and helping to ensure that prices reflect the underlying value of the securities or instruments being traded.