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.
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.
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