Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated August 5, 2020

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.

Ask an Expert about Make a Market
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Make a Market.
Be the first to ask a question

If you have a question about Make a Market, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Make a Market, then please ask Paul.

Ask a question Read more from Paul

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
Paul Tracy - profile
Ask an Expert about Make a Market

By submitting this form you agree with our Privacy Policy

Share
close