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V. 20:3 (44-48): A Market Maker's Perspective by Don Bright
V. 20:3 (44-48): A Market Maker's Perspective by Don Bright
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A Market Makers Perspective by Don Bright
Heres an eye-opening look at the market makers role and the pros and cons of this system in light of todays increasingly electronic marketplace.
W hen you place an order to buy a stock, what happens between the time you place your order and the time it is executed? You might think you have complete control over your trading decisions, but within that short period of time your order is in the hands of market makers and the control is out of your hands. Knowing what they do and how they operate can have a significant effect on your trading.
TYPES OF MARKET MAKERS
Theres a major distinction between the two most common interpretations of the term market maker, and its important to know the differences. The main market maker on the floor of an options exchange for a particular stock is called a Designated Primary Market Maker (DPM). This person is required to provide a fair market price (and thus liquidity) in the stock options traded. These traders can improve markets in many different securities, as desired, but must at minimum make a fair market in their designated stocks. There are specific guidelines as to the bid/offer spread and minimum trade size reflected when asked.
Heres an eye-opening look at the market makers role and the pros and cons of this system in light of todays increasingly electronic marketplace.
W hen you place an order to buy a stock, what happens between the time you place your order and the time it is executed? You might think you have complete control over your trading decisions, but within that short period of time your order is in the hands of market makers and the control is out of your hands. Knowing what they do and how they operate can have a significant effect on your trading.
TYPES OF MARKET MAKERS
Theres a major distinction between the two most common interpretations of the term market maker, and its important to know the differences. The main market maker on the floor of an options exchange for a particular stock is called a Designated Primary Market Maker (DPM). This person is required to provide a fair market price (and thus liquidity) in the stock options traded. These traders can improve markets in many different securities, as desired, but must at minimum make a fair market in their designated stocks. There are specific guidelines as to the bid/offer spread and minimum trade size reflected when asked.
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