Market makers role
The role of the market maker is to make sure there is a bid and ask on a particular stock.  That's it.  The market maker ensures that there is a price at which you can buy and a price at which you can sell immediately, but these are not necessarily the best prices.  The majority of trades do not involve market makers and occur between two third parties. Whoever said a market order trades with the market maker is thinking of the way stock markets were years ago, not the way they are now. Market orders are supposed to execute immediately and at one time trading with the market makers was the method for executing immediately. If you issue a market order today, it executes with the best available limit order(s) on the other wide of the trade.  This may or may not involve a party that identifies as a market maker.
"I agree completely.  ""I don't always agree with John Cochrane, but when I do, I agree completely.""  I think heavy reliance on either approach to pricing is generally a bad idea.  Equilibrium models always include something that you're supposed to inherently know, but never do.  No-arbitrage models don't necessarily *say* anything that you don't (in some mathematical sense) already know.  So you're either stuck with unknown parameters, or you can't explain why you're something is worth what you say it is beyond, ""Herp derp, other people are doing it.""  So I think if buy-side people made some use of no-arbitrage models, they'd have a better understanding of the parameters they're making up, and if sell-side people sometimes used equilibrium models, they'd have a better grasp of what's going on economically.  Also, it would have the beneficial effect of reminding people that their models are always wrong, even if they're frequently useful." Yes traders, living or algorithmic, are the only direct factors that can cause a change in the price of a marketable item. Traders can be affected by news, broken exchanges ;), emotional cycles, lunar cycles, time the trader goes to lunch (or a power cycle if you are an algo running on that unfortunate OS), anything. I understand what you mean, but for the general population the technicalities of secondary market is fundamentally a grey area. However, in my opinion, leading financial institutions such as GS, I expect them to make prudent decisions that is both ethical &amp; sustainable for the society as whole, even though it might not be feasible all the time. We will help to develop your business or selling of your services to national or international customers through the social media at the various platforms such as Facebook, Instagram and much more. We believe over the past decade, there has been a fundamental shift in the revenue creation process. Our role and responsibilities is to innovative marketers social media marketing companies and sales people to bridge the gap between their business units to improve sales funnel visibility company performance. For further more details about the seo-daddy, feel free to call us on +971 504019757. Markets are rational in the long term. Actors act rationally given the knowledge they have. They don't have perfect knowledge - meaning they're prone to make mistakes. However, in the LONG run, every would be a equilibrium.   Facebook stock is clearly over valued and the market is adjusting to the real price. Nothing spectacular going on there. popularity that you are referring to is just known as liquidity when discussing markets. More liquid securities tend to trade more shares per day and have very tight bid/ask spreads as many investors are buying and selling the shares at one time.  Some larger securities, especially on exchanges, further enhance liquidity by providing market makers. These are individuals on the NYSE, for example, that will make the market in large securities by handling large orders and providing liquidity through their own book of capital. The individuals on the floor on the NYSE you often see on TV are those market makers. However, as trading becomes more electronic, market markers are becoming less and less required.  A previous comment suggested pink sheets are risky companies. This is not entirely factual. While the majority of pink sheets are very highly risky companies, many very solid international companies trade their ADRs (American Depository Receipt) on the pink sheets to avoid the high cost of setting up a large exchange at the NYSE and register and report through the SEC.  As a TD Ameritrade user, I would be willing to help you out if you have any other questions. "I was the one who made the beating you to the punch comment.   That liquidity is worthless without an active market. That's the whole point of liquidity. An ability to sell back when needed. High volume means nothing when the fucking HFT buys all the stock and holds you hostage to his sell price.   The only thing raising the price of pineapples is high speed trading. They only buy OR sell **when they see a bid.** That is not a traditional market maker.  Please, tell me how that is wrong. That is not a rhetorical question.  edit: If a pineapple is listed at 6.00 let's say you decide to buy and throw it in your cart. A store employee overhears you saying ""I'd be willing to pay 6.02 for this"". The employee tells the cashier to raise the price to 6.02 right before you get to the register. This is HFT in a nutshell. It doesn't provide an active pineapple market because the pineapple was only being offered once a buyer was lined up." "First, as @littleadv mentions, and as I've pointed out before, anyone who participates in a market using limit orders (which, by the way, should be every non-professional investor) is by definition a market maker.  So, I will assume that your question pertains both to official market makers and to ""retail investors"" using limit orders. When you remark that there are such ""tight spreads"" in ""liquid assets"", what you are really saying is ""wow, look at all the market makers in these products!""  That's the benefit of electronic trading and algorithmic traders -- millions of participants each with their own opinion of the value of a financial instrument, trying to find people who have very specifically opposing opinions of the value of that same instrument.  This is called price discovery, and is the entire point of financial markets. So, you ask why are there all these market makers present to create such tight spreads in assets like SPY?  Answer: Because they can make money in these markets: Imagine (towards a contradiction) that market makers thought they couldn't make money by offering tight spreads in SPY, and so SPY had a wider spread than it actually does.  For example, say the highest bid for SPY was $99.98 and the lowest ask was $100.01.  Now imagine that a market maker with perfect knowledge of the future came along knowing that he would be able to sell SPY for $100.01 in 5 minutes.  Then he would load up as many buy orders as he could for $100.00 or lower.  (He wouldn't bid $100.01 or higher because those trades would not be profitable according to his information -- at least not 5 minutes from now.)  So the spread had previously been $0.03 and then suddenly it was $0.01, all because a market maker with better information came along and realized he could make money by creating a tighter market! Now, nobody has perfect knowledge of the future, which is why markets are never infinitely tight or infinitely liquid.  Each market maker has to weigh possible profits against the probability that those profits will actually turn into losses.  But if one market maker decides not to participate in a particular instrument, there's bound to be another market maker who will happily take his place.  So the very fact that there are so many market participants with resting buy/sell orders for SPY right now is proof that there are market makers able to make money doing so.  If they could not make money, they wouldn't be there, and the spread would be wider. 10-15 years ago, before electronic trading and algorithmic trading, the number of market participants was far lower, and the spreads were far wider, meaning retail investors like you and me had a much harder time making money.  The only people making money were the institutional investors, the brokers, and the exchanges.  Now that all these new millions of players are present in the market, retail investors like you and me get to participate and make money too." "There are people (well, companies) who make money doing roughly what you describe, but not exactly. They're called ""market makers"". Their value for X% is somewhere on the scale of 1% (that is to say: a scale at which almost everything is ""volatile""), but they use leverage, shorting and hedging to complicate things to the point where it's nothing like a simple as making a 1% profit every time they trade. Their actions tend to reduce volatility and increase liquidity. The reason you can't do this is that you don't have enough capital to do what market makers do, and you don't receive any advantages that the exchange might offer to official market makers in return for them contracting to always make both buy bids and sell offers (at different prices, hence the ""bid-offer spread""). They have to be able to cover large short-term losses on individual stocks, but when the stock doesn't move too much they do make profits from the spread. The reason you can't just buy a lot of volatile stocks ""assuming I don't make too many poor choices"", is that the reason the stocks are volatile is that nobody knows which ones are the good choices and which ones are the poor choices. So if you buy volatile stocks then you will buy a bunch of losers, so what's your strategy for ensuring there aren't ""too many""? Supposing that you're going to hold 10 stocks, with 10% of your money in each, what do you do the first time all 10 of them fall the day after you bought them? Or maybe not all 10, but suppose 75% of your holdings give no impression that they're going to hit your target any time soon. Do you just sit tight and stop trading until one of them hits your X% target (in which case you start to look a little bit more like a long-term investor after all), or are you tempted to change your strategy as the months and years roll by? If you will eventually sell things at a loss to make cash available for new trades, then you cannot assess your strategy ""as if"" you always make an X% gain, since that isn't true. If you don't ever sell at a loss, then you'll inevitably sometimes have no cash to trade with through picking losers. The big practical question then is when that state of affairs persists, for how long, and whether it's in force when you want to spend the money on something other than investing. So sure, if you used a short-term time machine to know in advance which volatile stocks are the good ones today, then it would be more profitable to day-trade those than it would be to invest for the long term. Investing on the assumption that you'll only pick short-term winners is basically the same as assuming you have that time machine ;-) There are various strategies for analysing the market and trying to find ways to more modestly do what market makers do, which is to take profit from the inherent volatility of the market. The simple strategy you describe isn't complete and cannot be assessed since you don't say how to decide what to buy, but the selling strategy ""sell as soon as I've made X% but not otherwise"" can certainly be improved. If you're keen you can test a give strategy for yourself using historical share price data (or current share price data: run an imaginary account and see how you're doing in 12 months). When using historical data you have to be realistic about how you'd choose what stocks to buy each day, or else you're just cheating at solitaire. When using current data you have to beware that there might not be a major market slump in the next 12 months, in which case you won't know how your strategy performs under conditions that it inevitably will meet eventually if you run it for real. You also have to be sure in either case to factor in the transaction costs you'd be paying, and the fact that you're buying at the offer price and selling at the bid price, you can't trade at the headline mid-market price. Finally, you have to consider that to do pure technical analysis as an individual, you are in effect competing against a bank that's camped on top of the exchange to get fastest possible access to trade, it has a supercomputer and a team of whizz-kids, and it's trying to find and extract the same opportunities you are. This is not to say the plucky underdog can't do well, but there are systematic reasons not to just assume you will. So folks investing for their retirement generally prefer a low-risk strategy that plays the averages and settles for taking long-term trends." The traditional role of a stockbroker is to arrange for the buying and selling of stock by finding buyers and sellers at an agreed upon price.  The broker does not purchase the stock for himself but merely arranges for the stock to be traded. A trader is one who purchases stock with the hope of selling it for a gain.  The trader will use a broker to help with the purchase and sale of a stock. "The answer posted by Kirill Fuchs is incorrect according to my series 65 text book and practice question answers. The everyday investor buys at the ask and sells at the bid but the market maker does the opposite. THE MARKET MAKER ""BUYS AT THE BID AND SELLS AT THE ASK"", he makes a profit form the spread. I have posted a quiz question and the answer created by the Financial Industry Regulatory Authority (FINRA). To fill a customer buy order for 800 WXYZ shares, your firm requests a quote from a market maker. The response is ""bid 15, ask 15.25."" If the order is placed, the market maker must sell: A)   800 shares at $15.25 per share. B)   800 shares at $15 per share. C)   100 shares at $15.25 per share. D)   800 shares at no more than $15 per share. Your answer, sell 800 shares at $15.25 per share., was correct!. A market maker is responsible for honoring a firm quote. If no size is requested by the inquiring trader, a quote is firm for 100 shares. In this example, the trader requested an 800-share quote, so the market maker is responsible for selling 8 round lots of 100 shares at the ask price of $15.25 per share." I don't see that this follows. Capital commitments require that one assess the ability to unwind as information changes - market frictions.  Thats why private equity demands a premium.    HFT is not investing - it is far closer to market making.  In that regard it is a social good.  What is of a concern is that they are far less supervised than a market maker.  They provide liquidity the way bankers provide loans - when it is not essential.  The old adage of an umbrella when it is sunny but take them back at the sign of rain.  If there are requirements to commit capital and maintain orderly markets with some oversight on their ability to maintain their capital ratios, a shadow market maker, then they should get to enjoy making a spread in exchange for keeping those spreads relatively tight. I would say it's a bit more complicated than that. Do you understand what a market maker does?  An ECN (electronic communication network) is a virtual exchange that works with market makers. Using a rebate structure that works by paying for orders adding liquidity and charges a fee for removing liquidity. So liquidity is created by encouraging what are essentially limit orders, orders that are outside of the current market price and therefore not immediately executable. These orders stay in the book and are filled when the price of the security moves and triggers them.  So direct answer is NYSE ARCA is where market makers do their jobs. These market makers can be floor traders or algorithmic. When you send an order through your brokerage, your broker has a number of options. Your order can be sent directly to an ECN/exchange like NYSE ARCA, sent to a market making firm like KCG Americas (formerly Knight Capital), or internalized. Internalization is when the broker uses an in house service to execute your trade. Brokerages must disclose what they do with orders. For example etrade's. https://content.etrade.com/etrade/powerpage/pdf/OrderRouting11AC6.pdf This is a good graphic showing what happens in general along with the names of some common liquidity providers. http://www.businessweek.com/articles/2012-12-20/how-your-buy-order-gets-filled For the lenders to sell their positions they need buyers on the other side. For a large brokerage that means they should always be able to find another lender. For many contracts the client may have no idea they are a lender as lending is part of their agreement with the broker "Market makers (shortened MM) in an exchange are generally required to list both a bid and ask price to allow both buyers and sellers to trade and keep the market moving.  However, a more general idea of a MM may includes companies off an exchange (say large banks acting as broker/dealers in an over-the-counter market) are not required to give a simultaneous bid/ask, but often will on request.  So, it might depend on where you are getting this data but likely the bid/ask was quoted simultaneously. An exchange, like the NASDAQ for instance, may have multiple MMs for a given market.  The ""market"" spread will be from the highest bid to the lowest ask over all the MMs.  The highest bid and lowest ask may come from different MMs and any particular MM often will have a larger spread. The size of the spread gives a rough idea of how much a MM is trying to make off of a ""round trip"" trade (buying than immediately selling to someone else or selling than immediately buying from someone else).  Of course, immediate round-trip trades are not always possible and there are many other complications.  However, half the spread is a rough indicator of how much they hope to make off of a single trade."