What's the main difference between a specialist and a market maker? Not much.

Both the New York Stock Exchange (NYSE) specialist and the Nasdaq market maker try to increase the liquidity on their respective exchanges and provide more fluid and efficient trading.

A specialist is a dealer representing a NYSE specialist firm - one of the main facilitators of trade on the exchange. A market maker is a broker-dealer who facilitates the trading of shares by posting bid and ask prices along with maintaining an inventory of shares. It is important to note that a specialist is a type of market maker. The NYSE has seven specialist firms while the Nasdaq has nearly 300 market makers. The NYSE is an auction-based market where traders meet on the floor of the exchange, using person-to-person, telephone orders or electronic orders. The Nasdaq, on the other hand, is strictly an electronic exchange.

Specialists working on the NYSE have four roles to fulfill in order to ensure a fair and orderly market:

Because the NYSE is an auction market, bids and asks are competitively forwarded by investors. These bids and asks must be posted for the entire market to see to make certain that the best price is always maintained. It is the job of the specialist to ensure that all bids and asks are reported in an accurate and timely manner, that all marketable trades are executed and that order is maintained on the floor. Along with posting the daily bid and ask prices, the specialist must also set the opening price for the stock every morning. This price can differ from the previous day's closing price based on after-hours news and events. The role of the specialist is to find the correct market price based on supply and demand.

2. Agent
The specialist can also accept limit orders relayed by investors through brokers or electronic trading. It is the responsibility of the specialist to ensure the order is transacted appropriately on behalf of others, using the same fiduciary care as the brokers themselves once the price of the stock has reached the limit criteria.

3. Catalyst
Because the specialists are in direct contact with the bidders and sellers of particular securities, it is their responsibility to ensure that enough interest exists for a particular stock. This is carried out by specialists seeking out recently active investors in cases where the bids and asks can't be matched. This aspect of the specialist's job helps to induce trades that may not have happened if the specialist had not been there to bring buyers and sellers together.

4. Principal
In the instance where there's a demand-supply imbalance in a particular security, the market maker must make adjustments by purchasing and selling out of his or her own inventory to equalize the market. If the market is in a buying frenzy, the specialist will provide shares from until the price is stabilized. A specialist will also buy shares for his or her inventory in the event of a large selloff.


Market makers working on the Nasdaq exchange are not actually at the exchange. They are large investment companies that buy and sell securities through an electronic network. These market makers maintain inventories and buy and sell stocks from their inventories to individual customers and other dealers.

Each market maker on the Nasdaq is required to give a two-sided quote, meaning they must state a firm bid price and a firm ask price that they are willing to honor.

Each security on the Nasdaq generally has more than one market maker, with an average of 14 market makers for each stock; this provides liquidity and efficient trading. The market makers are openly competitive and facilitate competitive prices; as a result, individual investors generally will get the best price. As this competition is evident in the limited spreads between posted bids and asks, the market makers on the Nasdaq will in some instances act very much like the specialists on the NYSE.

(For further reading, see Understanding Order Execution and/or The Tale Of Two Exchanges: NYSE And Nasdaq.)

  1. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  2. What is the difference between shares outstanding and floating stock?

    Shares outstanding and floating stock are different measures of the shares of a particular stock. Shares outstanding is the ... Read Full Answer >>
  3. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    The primary advantages for a company of listing on the Nasdaq exchange are lower listing fees and lower minimum requirements ... Read Full Answer >>
  4. What is the difference between market risk premium and equity risk premium?

    The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same ... Read Full Answer >>
  5. What is the difference between the QQQ ETF and other indexes?

    QQQ, previously QQQQ, is unlike indexes because it is an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. The ... Read Full Answer >>
  6. What is the difference between an investment and a retail bank?

    The activities and types of clients for an investment bank versus those for a retail bank highlight the primary difference ... Read Full Answer >>
Related Articles
  1. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  2. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  3. Professionals

    What Financial Advisors and Brokers Need to Know About Rule 407

    Learn about NYSE Rule 407 and how it may impact you as a financial advisor or investment broker. What you don't know about this regulation can hurt you.
  4. Active Trading Fundamentals

    Why Rational Ignorance About Your Investments Might Really Be OK

    It's impossible to know everything about the markets. Find out how ignorance affects your investments.
  5. Investing Basics

    Understand How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  6. Stock Analysis

    The 5 Most Shorted NYSE Stocks

    Understand what a short sale is and why people would want to initiate a short strategy. Learn about the top five most shorted stocks on the NYSE.
  7. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  8. Investing

    Asset Manager Ethics: Rules Governing Capital Markets

    The integrity of the capital markets needs to be kept at utmost importance for all investors. This article shows how to maintain the integrity while investing.
  9. Investing

    Hetty Green: Invest Like the Richest Woman in the World

    Investors would be wise to emulate the approach to the markets that Hetty Green used to grow her fortune.
  10. Investing News

    Understand the SEC Rules on Equity Crowdfunding

    The SEC's adoption of equity crowdfunding rules, initiated under the JOBS Act, enables small investors to invest in companies that show early potential.
  1. Futures Market

    An auction market in which participants buy and sell commodity/future ...
  2. Capital Markets

    Capital markets are markets for buying and selling equity and ...
  3. Equity Market

    The market in which shares are issued and traded, either through ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  5. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  6. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center