MarketMaking and MarketMaker. What is it and who is it?

2022年8月31日

All participants in financial exchanges can be divided into two categories - market makers, who set the mood in the market, and market makers, private investors with small capital.

Market makers (they are in minority) will always manipulate market makers (they are in majority).

What is a market maker, who he is, what he does at the exchange and why he is needed?

WHO IS A MARKET MAKER AT THE STOCK EXCHANGE?

This is a professional in the market with very large money, without whom trading is impossible - because this figure is considered a key player in the market and moves the price. Most often, this is the whole financial organization.

MARKETMAKER is the one who creates and maintains the liquidity level of exchange, currency, cryptocurrency, futures instruments, etc.

It is only possible to make transactions on the market through the market maker, who regulates the processes so that the exchange is not dominated by only sellers or buyers.

The MARKETMAKER is obliged to buy even if the market is dominated by sellers and even if it leads to losses. And when the market is dominated by buyers, the market maker must sell in order to balance the market. The main purpose of the market maker is not to make money, but to regulate supply and demand, to maintain liquidity.

CATEGORIES OF MARKETMAKERS

• Large commercial banks, but not by themselves, but united in groups: they are called institutional market makers.
  
• Brokerage companies
  
• Dealing centers
  
• Investment funds
  
• Private investors with significant capital.
  

WHY DO WE NEED A MARKETMAKER?
It stabilizes the market, controls price movements, satisfies traders' demand. And since large financial institutions take on this role, they can be both sellers and buyers.
The market maker makes a huge number of deals every day and ensures the liquidity of assets.

The peculiarity of their work is that market makers can support the quote both in the buy and sell direction simultaneously on the same financial instrument, which makes the price move more smoothly and price gaps disappear.

TASKS OF MARKET MAKERS

• Ensure profitable deals for all participants
  
• To maintain sufficient liquidity for any instrument throughout the trading session
  
• To accumulate orders within the instrument being traded
  
• Find and consolidate the best price offers and record them in the price book
  
• Provide all participants with information on current quotes as soon as possible
  

WHAT AND HOW DO MARKET MAKERS MAKE MONEY?
The best way to make money on the exchange is to be able to correctly predict large price movements and timely open positions in this direction.

No market maker can do it on a large scale, but a small impulse is enough to start the process of a large price movement. And for this market maker first forms a trend in the direction he needs, after which he acts in the opposite direction. Thus, the market maker makes a profit, while other participants lose more or less.

Since market makers are the first to review current orders, they are the first to find out about the emergence of a trend in one direction or another and do everything necessary to balance the market and not allow a large surge of volatility. For the fact that he keeps the market price of the instrument in the predetermined limits, the market maker receives a significant discount on the commissions. And his profit is the difference between the bid and ask prices, which is called the dealing spread.

Because the exchange is interested in maintaining the liquidity of assets, it encourages healthy competition and advocates the presence of several market makers on one floor. It reduces the cost of transactions, increases the speed of transactions and makes pricing transparent. Even the exchange rules often contain a clause that a deal is legal if a market maker is involved, i.e. it is quite a significant and influential market player.

HOW DOES THE MARKET MAKER WORK?
He establishes a connection with his clients through a program, analyzes the market and executes orders of his broker's clients. Often he prefers to work with mid-sized brokers to have the necessary volume of transactions to make money.

Marketmaking. Order-Making and Order-Making.
The function of Order-Making is to watch a particular company's stock and make predictions. Order-taking is to execute traders' orders and take additional profits.

HOW DOES PROFIT TAKING TAKE PLACE?
Like other market participants, market makers can also incur losses, which occurs if a position is chosen incorrectly. But due to the fact that market makers work with large volumes of trades and a large number of clients, they always have an opportunity to cover their losses.

Regards! R.Linda!