Market makers
Market makers are typically banks and brokers who commit to trade shares and bonds, often in larger quantities than most other investors.
Markets only work well if there is a decent number of buyers and sellers, so that deals can get done. Otherwise, they become 'illiquid'. Enter market makers. In the equity market these are specialist members of the London Stock Exchange typically banks and brokers who commit to trade shares and bonds, often in larger quantities than most other investors.
They are particularly useful in relatively illiquid markets for, say, smaller stocks, where dealing can be difficult. But be warned: each market maker sets its own buying and selling (bid and offer) prices and the gap (or spread) can be wide when few market makers compete to trade a security.
So the more market makers there are, the better, as it increases competition and keeps prices keener.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: What are market makers?
-
Should you invest in UK equities?
The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
By Katie Williams Published
-
State pension errors: DWP urged to check for mistakes among divorced people
Former pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
By Ruth Emery Published