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.

Need Help Passing Your Series 57 Exam?

NASDAQ Subscription Levels

Related Articles
  1. Investing

    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. ...
  2. Investing

    How Bid Price Affects Liquidity

    The bid price is the amount a buyer will pay for a security.
  3. Personal Finance

    How Brokers Can Avoid A Market-Maker's Tricks

    Ensure that you and your clients are getting the best deal by avoiding these three pitfalls.
  4. Investing

    Time to Sell Universal Display After 121% 12-Month Gain?

    Universal Display shares have soared amid adoption of its next-generation emitters. Analyze the validity of its new valuation.
  5. Trading

    High-Frequency Trading: A Primer

    An in depth look at how high-frequency trading works and who the players are.
  6. Investing

    The Foreign Exchange Interbank Market

    Can your forex broker offer you the most competitive pricing? Learn how the market's biggest players affect you.
  7. Investing

    What Is A “Broker-Dealer” And Why Should You Care?

    For many investors, the financial services industry is a strange and mysterious place filled with a language all in its own.
  8. Trading

    An Introduction To Securities Markets

    The global securities market is constantly evolving. Discover the most popular market structures currently in use.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center