The Market Makers
The Market Makers
By the time you read this, you may have already heard about the stock market and have an idea of what one is expected to do there. You may have already learned that the stock market is a great place to earn some profits. You may have heard of ways in which you can earn those profits and may be some of the strategies that investors employ to be able to earn capital gains from stocks. You may have also heard that you would need people called stock brokers to do the hard work for you and buy and sell the stocks you tell them to. If you have then it is probably time for you to learn about the market makers.
Market makers, like stock brokers, are one of the key players in the stock market. Life would be very difficult without them. Try and imagine that you wanted someone to buy your house. To be able to do this you would have to post advertisements, send out flyers, put a for sale sign in your yard. It would probably take you a while to find the right person who would want to buy your house at the price that you are selling it. In the same way, if there are no market makers you would probably have to spend some time in finding the right person to buy your stocks at your desired price or to find the right person to sell you the stocks you want. Market makers are persons that match-up the buyers and sellers of the stock. Each stock has a market maker.
The market maker for a stock is required to buy all its shares from those that are willing to sell them. The market maker then sells the stocks he bought from those that are willing to buy them. He is like the biggest seller and buyer for a particular stock. He is like the stock matchmaker. He matches the buyers and the sellers for the prices that each is willing to sell. You may be wondering how the market maker can make money from buying and selling the stocks. The market maker earns his money from the spread of the ask and the bid prices. The ask price is the price that the seller is demanding to consent to the sale of the stock. The bid is the price that the buyer is demanding to consent to the buying of the stock. The spread may be different for varying markets but it is commonly not more than a ten cents.
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