Posted by: Labdhi Mehta on Mar 26, 2018, 06.30 AM IST
1. Market makers are member firms appointed by the stock exchange to inject liquidity and trade volume into stocks.2. Each market maker displays buy and sell quotations for a guaranteed number of shares.3. Once an order is received from a buyer, the market maker immediately sells from its own holdings or inventory of those shares to complete the order.4. The market maker is compensated for the risk by being allowed to offer two-way quotes in the market, consisting of the buy and sell prices quoted together, the difference being the profit.5. The framework of market makers reduces the time required to execute a trade and the cost of transacting in that stock, allowing a large number of shares to be traded.
This article appeared in Economic Times dated Mar 26, 2018, 06.30 AM IST
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