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.
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?
-
Is it time to ride the recovery in emerging markets?Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
Could the Enterprise Investment Scheme cut your tax bill?The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
Index providerGlossary Stockmarket indices such as the FTSE 100 play a huge role in investment. But where do they come from and who maintains them?
-
AIM
Glossary The Alternative Investment Market (Aim) was first established in 1995 by the London Stock Exchange as a way for newer firms to gain access to public funds...
-
What are exchange traded funds (ETFs)?Glossary Exchange-traded funds (ETF) are increasingly popular with investors, but what are ETFs and how do they work?
-
FTSE 100
Glossary The FTSE 100 is Britain's 'blue-chip' stock index.But its makeup means it is more of a global index than a snapshot of UK plc.
-
Global depository receipt (GDR)
Glossary Global depositary receipts (or GDRs) offer a solution for investors wanting to buy shares listed in countries where there are government restrictions on who can own and trade them.
-
Off Exchange (OFEX)Glossary The Off Exchange (OFEX) was started as a way for shareholders to deal in the shares of small companies that do not meet the requirements of Aim and the LSE’s official list.
