Market Maker | Definition | Types | Role of Broker
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Market Maker | Definition | Types | Role of Broker

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that’s going below now let’s begin with the concept of market maker what exactly
this is all about see a market maker is commonly known as a broker is a sort of
a middleman that provides purchases and sales option for the investor in order to
keep the financial markets wallet at so market maker can also be an individual
intermediary and a broker well let’s begin with the first what is the market
maker or who are these market Maker see as a market maker is a market
participant that executed transaction of let’s say buy and sell transactions of
the securities that are regularly at a price that are prevailing in the
exchange trading system for its own account which are called as the
principal traders they are known as principal so with the help of these
system a market maker broker can enter and you know adjusts codes to buy sell
turn execute orders and clear those orders so market makers are member firms
appointed by the stock exchanges to maintain the liquidity and trade volumes
in stock markets see a market maker is commonly known as what we call him as
broker or a broker firm you can say that that provides purchase and sale option
for the investor and in order to keep the financial markets volatile the
market maker can also be individual intermediate or a broker so as we
we know that you know market making facilities facilities are very smooth
flow or in the financial markets and these facilities the investors and
traders to buy and sell security easily low volatility in the market neutral
results in less investments over also less investment will result in less
funds that are available for the smaller company so these this
system of the market maker reduces the time that is required you know to
execute a trade and the cost of the transacting in that stock which is
allowing a large number of the shares to be traded and as for the exchange rules
there are many categories of the market making a market maker firm as an option
to decide to commit to more responsibility for smooth functioning of
the transaction in the market performances or specific security in
which it agrees to trade so market maker is responsible for continuously coating
the prices at which they are willing to buy and sell for the stock so market
makers are you know they are repaid you know in terms of repaid for the risk of
holding the stock the risky they face is they decrease the value of the security
and after it has been purchased from the seller and before it’s sold to the buyers
so therefore sold market maker broker charges are what we call as margins on each of
the stock which they cover so this is also known as what we call as the
bid-ask margins now how exactly how does it works I mean how does exactly the
market strategy works in this particular scenario see by holding a large number
of the given shares or securities a market maker is able to adjust its high
volume of the market orders and in seconds at a very competitive price of
investors are selling so market makers are required to keep buying and vice
versa so their role is to take the opposite side of whatever trades or
transactions have been conducted at a very given point of time
so with these market maker strategy they are able to fulfill the market demand
market demand for a stock and it facilitates its circulation now the
third is the role of market makers what is the role of the market makers
seen market makers are very important in retail trade some of the roles of market
makers are providing providing liquidity okay so the role of the market maker is
to provide liquidity and make the trading accessible to the retail traders
in the market so they are required to provide the opportunities to make the
trade in the market and market making firstly it’s a very smooth flow in the
financial markets they help in investors and traders to buy and sell security
easily in the market the second is by matching the orders okay see the market
makers broker they identify the market for the buyers and sellers of the same
stock or securities are a very particular volume and then they execute
a buy order on the stock security of the same volume to sell order of the same
stock security with some with the same volume but there are situations when it
may happen that there is no exact match for the order so there is where the
market makers play a very vital role by acting as a buyer or seller for search
transaction in this manner so market maker acts as a you know counterparty to
trade to buy a sell order from a trader or sell in an asset to a trader to match
the buy order third is that they stabilize the stabilizing the spreads
now what is this spirits it’s buy and sell spread see market makers have to
influencer to stabilize the spreads by maintaining the liquidity so it would be
very difficult to keep the low and a very fixed rate that should be the case
and however as a market maker brokers you know bear the risk they bear the
risk and then they fix the prices for the trader so which helps them to keep
the spread low and that completely fix these helps in cost saving for retail
traders while executing the trades the fourth is the
advantages of the market making advantages is to companies now the
market makers analysis the security option which benefits the company they
do the analysis of the security options now it helps to continually a source the
liquidity of the company scripts they help in providing easy in valuations for
the company scripts to the investors how are they useful they help the investors
to what we call as the liquidate their investment at a better price at any
point of time market making concepts have a very tough competition and which
results in their efficient pricing of the stock and they benefit the investor
by providing valuable information on the company so there are some types of the
market makers what are these these types II there are basically two types of
market making brokers in the market the first one is called the principal market
makers which is also known just right right pmm it’s called the principal
market makers see the principal market makers the offers to buy and sell code
for a period of almost for 18 months from the commencement of the initial
trading and second is called the additional market makers now the
additional market makers normally they buy and sell quotes for a Period for
almost 1 year of time spent from the actual commencement of the initial
trading I’ll give you an example to give you a brief idea about this see in the
market making example let’s say that market broker has entered a sell order
for let’s say tightens shares okay and the bid-ask spread is 65. 25 and 65.30 so the market maker can try
and two sell their shares of Titan at 65.30 if this is what the market maker may choose do he or she can
turn around into enter a bid order now if he or she enters into the bid at
65.26 okay then the new market is created referred to as the
market making of a market so because that bid price is now the best bid so if
the market makers attracts the seller at the bid price of over here 65.25 we’ve had it means 65.26 then he or she has
successfully made a spread made the spread okay so the market maker sold
1,000 shares for 65.26 1000 shares for 65.30 and bought this shares back at 65.26 as a
result the market maker has made on 1,000 shares X 0.04 pairs that’s on the difference that has been actually been the amount
that has been made by them so that’s it for this particular topic of market
maker if you have learned and enjoyed watching this video please like and
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thank you everyone Cheers

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