Market makers

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.

• See Tim Bennett’s video tutorial: What are market makers?

MoneyWeek magazine

Latest issue:

Magazine cover
The hunt for water

The most valuable commodity

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Robert Shiller: why one of the world's smartest economists is worried about the bond market

Merryn Somerset Webb talks to Yale professor and Nobel Prize winner Robert Shiller about how the power of 'stories' drives the global economy and creates financial bubbles.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


27 February 1900: The Labour Party is launched

Responding to the need for a single political party to represent the trade unions, the Labour Party was formed on this day in 1900, led by MP Keir Hardie.