Posted in Finance, Accounting and Economics Terms, Total Reads: 453
A person who is a member of the exchange and primarily helps in the process of trading of stocks. They can act as a market maker and generally holds large quantity of stocks, sets the bid price and ask price, manages and limits orders and help in the completion of trading.
Whenever a large volume of stocks are in transaction the specialist helps in by trading from their own inventory of stocks. It has been seen that whenever there is spike in the demand of buy or sell side, the specialist intervenes and sells from his inventory of stock till the gap has been narrowed or parity restored. The specialist is in the motive of making profit in the bid-offer spread.
In currency exchanges also there is the presence of market maker which can be in the form of banks. It sells and buys from the client and they can be compensated in the form of price differential for reducing transaction cost, for providing liquidity and for facilitating the trade. The companies’ sell their stock at a certain price while the specialist is willing to pay only a certain price to buy the stock. The difference if any within these 2 price is known as market maker spread. Since market makers provide liquidity to their client firms, they are compensated in terms of commissions also.