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
See Tim Bennett's video tutorial: What are market makers?
December 2023 NS&I Premium Bond winners - check now to see what you’ve won
If you hold money in NS&I Premium Bonds, you can check from today (2 December) to see if you have won in the December prize draw. Here’s how to check.
By Vaishali Varu Published
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
By Dr Matthew Partridge Published