Understand Inside Spreads – How to Invest
One of the first of many steps in understanding trading is to define the players. What day traders really focus on are the activities of market makers. A market maker represents an institution (such as Merrill Lynch & Co., Prudential Securities, Lehman Brothers, and so on) that wants to make a market in a particular NASDAQ stock. The market maker is a specialist on an exchange or a dealer in the over-the-counter market who buys and sells stocks, creating an inventory for temporary holding. The market maker provides liquidity by buying and selling at any time. However, the market maker isn’t under any obligation to buy or sell at a price other than the published bid and ask prices.