RE: ANOTHER "what happens when offer comes in" thread8 Oct 2020 10:19
Ferg,
A market maker (MM) is a firm or individual who actively quotes two-sided markets in a security, providing bids and offers (known as asks) along with the market size of each. For instance, a market maker in XYZ stock may provide a quote of $10.00-$10.05, 100x500. This means that they bid (they will buy) 100 shares for $10.00 and also offer (they will sell) 500 shares at $10.05. Other market participants may then buy (lift the offer) from the MM at $10.05 or sell to them (hit the bid) at $10.00. Market makers provide liquidity and depth to markets and profit from the difference in the bid-ask spread.
Market makers may also make trades for their own accounts, which are known as principal trades.
A market maker is a individual market participant or member firm of an exchange that also buys and sells securities for its own account, at prices it displays in its exchange's trading system, with the primary goal of profiting on the bid-ask spread, which is the amount by which the ask price exceeds the bid price a market asset.
The most common type of market maker is a brokerage house that provides purchase and sale solutions for investors in an effort to keep financial markets liquid.
Market makers are compensated for the risk of holding assets because they may see a decline in the value of a security after it has been purchased from a seller and before it's sold to a buyer.
Hope this helps