Buying and selling stocks is a very efficient process. You usually do not have to wait very long before your transaction to take on or give up some stocks is completed. This is all made possible by market makers who play the intermediary role in all stock market transactions. They may be a brokerage firm or a bank, but their role is a crucial one for market liquidity and market efficiency. Learn more about how they do this by reading the EuropeFX review expert summary below.
How Market Makers Facilitate Trades
When a stock owner is ready to exchange some of their stocks for money, what do they do if no one is looking to buy what they are selling at that particular moment? Thanks to market makers, that is one matter they do not have to worry about. The market maker buys the stock from the seller and eventually sells it when someone does decide to buy that particular stock. This makes trades quicker for both the buyer and the seller.
Risks and Benefits
It must be noted that there is a large amount of risk the market maker must take on. Between the time you sell your shares and the time someone decides to buy them from the market maker, there could be a huge drop in price. In that case, the market maker suffers the loss. Things can change drastically in the stock market at a moments’ notice and for a number of reasons as discussed by EuropeFX review experts.
To mitigate this risk and to make a profit off of the transactions they facilitate, the market maker buys shares at the ask price and sells them at a slightly higher bid price. This allows them to make something off each transaction. As they handle huge numbers of transactions daily, these profits add up.
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