Make a Market
What is Make a Market?
Making a market is a process whereby a person or brokerage house that is always prepared to buy and sell securities in order to provide liquidity to the markets.
How Does Make a Market Work?
In order to make a market, a brokerage firm must be willing to hold a disproportionately large amount of a given security so that it can satisfy a high volume of market orders in a matter of seconds at competitive prices. If investors are selling, market makers are supposed to keep buying, and vice versa. They are supposed to take the opposite side of whatever trades are being conducted at any given point in time.
In this sense, market makers, as the name suggests, are able to satisfy the market demand for a security and facilitate its circulation. The Nasdaq, for example, relies on market makers within its network to ensure efficient trading.
It is important to note that market makers profit through the market maker spread, not by betting on the direction of the security's price. They are supposed to buy or sell securities according to what kind of trades are being placed, not according to whether they think prices will go up or down.
Why Does Make a Market Matter?
In contrast to conventional brokerage, making a market involves a high level of risk because of the high number of units market makers hold (their inventory). Market makers promote market efficiency by keeping markets liquid. To ensure impartiality for the benefit of their clients, brokerage houses that act as market makers are legally required to separate their market making activities from their brokerage sales operations.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.