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.

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

Most Popular

Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
Share tips of the week – 26 May
Investments

Share tips of the week – 26 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
25 May 2023
Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad
Personal finance

Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad

A family of four on a week-long trip to France could pay an extra £212 in fees by using their everyday bank card compared to the lowest-cost option, a…
23 May 2023