About 'investor equity'|MySpace sold; Justin Timberlake Becomes Equity Investor
When you are trading equities, you need to have a partner. Not just your broker on the other end who has your money market or cash account on hand; you need a buyer or seller. To that end, you're searching out someone to buy from you your stock or sell to you their stock at a certain price. However, what happens when there are no buyers or sellers at the time you want to buy or sell? This is where a market maker comes into play. Market makers are the banks or brokerage companies who are always willing to quote you a buy or sell price at any point during any trading session, even if they don't have access to the equity or trade at that moment. While your stocks "bid" and "ask" may fluctuate at different points during the day, you are guaranteed to be able to command a firm price from a market maker. Novice investors may misconstrue market makers as being something negative; back alleyway dwellers if you will. This may have something to do with the reputation a lot of market makers have earned themselves. Most market makers, one would like to assume, act honorably and don't break the rules. There are though bad apples in every bunch; even the market makers of the world sometimes make mistakes. But the suffering of all should not occur because of the misdeeds of few. Market makers operate by buying and selling the stock of a company or companies. They may have a reserve of shares on hand to draw from, they may have orders coming in from other traders to buy the same stock someone else wants to sell, or they may wait for an order to come in to offset the cost for them to buy the stock from you. This risk they take is paid for by what is known as the "spread". The spread is the difference between the bid and the ask price and this spread times many hundreds or thousands a day is from where the market maker makes their money. While market makers may get a bad rap in the press, the fact is that they are needed to make sure that the financial markets continue to operate. Market makers are the driving force keeping companies afloat in the world financial markets as well as keeping people interested in their existence. If you're looking on your level 2 market quotes (if you have access to these quotes) and you see market makers loading up on your particular stock, that may be a very bullish, positive signal; the opposite could be construed to be true if you see their accounts being liquidated. Market makers make the markets. If you are keen on learning more about how the market makers operate for your particular equity, you should ask! So long as they are playing by the rules and keeping everything above board it should be smooth sailing for your investment plot. Of course the choppy waters of the market itself are not something that your market maker can control, per se; however if you've done your due diligence and you're comfortable with your stock and your market maker, you should be just fine. Source: http://www.investopedia.com/terms/m/marketmaker.asp |
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