Trading Over The Counter And NASDAQ Securities - Market Makers

Because there are no specialists for the over the counter markets, bids and offers are displayed by broker dealers known as market makers. A market maker is a firm that is required to display a two-sided market. A two-sided market consists of a simultaneous bid and offer for the security quoted through the NASDAQ workstation. The market maker must be willing to buy the security and the bid price, which they have displayed, as well as be willing to sell the security at the offering price, which they have displayed. These are known as firm quotes. There is no centralized location for the NASDAQ market; it is simply a network of computers, which connects broker dealers throughout the world. Market makers purchase the security at the bid price and sell the security at the offering price. Their profit is the difference between the bid and the offer known as the “spread”. Rule changes and new trading systems known as ECN’s or electronic communication networks have narrowed the spreads on stocks significantly in recent years. Firms that act as market makers must continuously display two-sided quotes during normal business hours. Firms may remain open for extended hours trading but are not required to display quotes after the close of the market at 4:00 PM EST.

TAKE NOTE!

During extended hours trading the market has greater volatility, lower liquidity and fewer market participants than trading during the regular session. As a result there are wider spreads and the risk of poor executions.

NASDAQ Subscription Levels


Related Articles
  1. Professionals

    D. NASDAQ

    Securities that are not listed a centralized exchange trade over the counter or on the NASDAQ. NASDAQ stands for National Association of Securities Dealers Automated Quotation System. It is the ...
  2. Retirement

    Electronic Trading: The Role of a Market Maker

    Market makers compete for customer order flows by displaying buy and sell quotations for a guaranteed number of shares. The difference between the price at which a market maker is willing to ...
  3. Professionals

    Piggybacking A Quote

    If an OTC BB security has been quoted by another dealer for a minimum of 30 days, they may simply enter their own quote by piggybacking the current dealer’s quote so long as: The security ...
  4. Forex Education

    Market Makers Vs. Electronic Communications Networks

    Learn the pros and cons of trading forex through these two types of brokers.
  5. Investing Basics

    What's a Dealer Market?

    In a dealer market, market participants buy and sell through dealers who are designated as market makers.
  6. Professionals

    Handling And Displaying Customer Limit Orders

    If a market maker accepts customer limit orders, it must handle the order in accordance with The Limit Order Display Rule. If a market maker accepts a customer’s limit order that would ...
  7. Professionals

    OTHER OPTIONS EXHANGES

    Specialist The specialist is a member of any other option exchange that is required to maintain a fair and orderly market for the options in which they specialize. The specialist is required ...
  8. Investing Basics

    Role Of A Market Maker

    A market maker is a firm or an individual that stands ready to buy and sell a particular security throughout the trading session to maintain liquidity and a fair and orderly market in that security. ...
  9. Professionals

    Introduction

    In addition to the requirements to become a market maker, firms must follow strict guide- lines when acting as a market maker. Market makers must adhere to all rules relating to their participation ...
  10. Professionals

    Locked And Crossed Markets

    Market makers may not enter quotes that would lock or cross the market. A locked market is one where the bid and offer are equal in price. For example, if another market maker came into the above ...
RELATED TERMS
  1. Two-Sided Market

    A market in which market makers (or specialists) are required ...
  2. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
  3. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  4. Order Driven Market

    A financial market where all buyers and sellers display the prices ...
  5. One-Sided Market

    When the market for a security only shows either one bid or one ...
  6. Firm Quote

    A price quote on a security, made by a dealer or market maker, ...
RELATED FAQS
  1. What is the difference between a quote driven market and an order driven one?

    The difference between these two market systems lies in what is displayed in the market in terms of orders and bid and ask ... Read Answer >>
  2. What's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Answer >>
  3. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  4. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  5. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ... Read Answer >>
  6. Is an earnings surprise priced into the opening value by market makers or does the ...

    An earnings surprise is an event where the earnings of a company are greater or lower than the predictions put forth by analysts, ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center