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Market maker |
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Market makerA market maker is a dealer on the London Stock Exchange, who acts as a wholesaler (i.e. quotes buy and sell prices to brokers) for the shares in which he is registered to trade as a principal. Market makers fulfil buy and sell orders from brokers, and create a marketplace for the buying and selling of shares to match supply and demand.The market maker makes a profit by committing his company's capital, aiming to buy low and sell high. There is always the possibility that he may buy high and sell low, thereby incurring a loss.The market maker who buys 10,000 shares of Marks & Spencer at £2.58 will attempt to sell them at a higher price e.g. £2.60, thereby realising a profit of £200. Conversely, he could sell stock for £2.60 and later buy it back for £2.58, again realising £200 profit. However, market forces can cause the market maker to sell stock at £2.58 then, due to high demand, have to repurchase (recoup his short position) at a higher price of £2.64, thereby losing £600.Stock prices constantly change, reflecting the supply and demand for those stocks. Low supply and high demand leads to high prices. High supply and low demand leads to lower prices.The market maker is obliged to honour the price he reflects on screen in the size he is showing. This size is often larger than the NMS, which is the minimum size in which a market maker must quote a two way price.If a broker wants to buy or sell a larger quantity of shares than the market maker is showing, i.e. showing 5x5 but the broker wants to buy 10,000 shares, the market maker may refuse to trade on these grounds. He is, however, still duty bound to sell the broker a minimum of 5,000 shares at the price shown. Furthermore, he may be able to offer him the full 10,000 shares, but the market maker can name the price.Market makerUsed in the context of general equities. One who maintains firm bid and offer prices in a given security by standing ready to buy or sell round lots at publicly quoted prices. See: Agent, dealer, specialist.Market maker Similar MatchesMarket priceMarket priceThe price at which a market clears. Depressed marketDepressed marketMarket in which supply overwhelms demand, leading to weak and lower prices. Money Market MutualMoney Market MutualFunds which invest in the "Money Market," a variety of interest bearing securities such as treasury bills and bank certificates of deposit. None is invested directly into real property or real property securities. Open marketsOpen marketsMarkets that are free of restrictions on who can buy and sell. Playing the marketPlaying the marketTrading in high, uncalculated risk usually refers to actions of amateur investors. Further SuggestionsMarket openingGray market Bidding through the market Samurai market Primary market money market Index and Option Market (IOM) Thin market Brokered market Orderly Marketing Arrangement Market equilibrium Permission marketing Common market London Market Information Link Foreign equity market Market price Eurocurrency market Forward market Security market plane market not held order Private market value (PMV) Fourth market Market overhang Nonmarketed claims Overlap the market |
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