![]() The main function of the market maker is to reduce volatility and facilitate price discovery in the stock market by providing a limited trading range on the security they make a market in. Market makers in different markets and operating on different exchanges are subject to different rules regarding what they're allowed to buy and sell and the types of trades they can make. Broker-dealers must also register with FINRA. Securities and Exchange Commission (SEC). Exchanges in the United States are governed by the U.S. Market makers are regulated by the exchange they operate on, as well as any financial industry regulators in the country they're based in since they operate as broker-dealers. It will take either side of a trade, even if it doesn't have the other side lined up right away to complete the transaction. If it receives a sell order, it buys shares at its quoted price and adds them to its inventory. When a market maker receives a buy order, it will immediately sell shares from its inventory at its quoted price to fulfill the order. The difference between the buy and sell quotes is called the bid-ask spread. Additionally, they're constantly offering quotes on prices they're willing to pay to buy more shares (a bid price) and the price they're willing to sell their shares for (an ask price). ![]() Market makers usually carry an inventory of any securities they make a market in. ![]() By making a market for securities, these banks and brokerages enable much greater trading activity and use of their services. ![]() Market makers are usually banks or brokerage companies that provide trading services. ![]()
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