What is 'Normal Market Size'

Normal market size is a share classification structure based on the number of shares outstanding. This determines the number of shares that a market maker can trade at the quoted price.

BREAKING DOWN 'Normal Market Size'

Normal market size (NMS) is the minimum number of securities for which a market maker is obliged to quote firm bid and ask prices. In a quote-driven market, market makers cannot be expected to offer firm quotes up to an unlimited size. However, they must provide sufficient liquidity for investors to be able to transact reasonable quantities of a security at a quoted price. This is what constitutes normal market size.

How Normal Market Size Works

If Company X has an NMS of 1,000, a market maker must quote firm prices for volumes of that stock at least that size. The market maker may go higher though, for example he may quote a size of 3,000 offer and 3,000 bid. In such a scenario, a trader should be able to buy or sell up to 3,000 shares of Company X via that market maker at the quoted prices.

The market maker's quote will show on a trader's screen as Company X at $1.05 - $1.10 (3,000 x 3,000). This means the market maker is prepared to sell up to 3,000 shares at $1.10 or buy up to 3,000 shares at $1.05.

If a trader wants to buy or sell more than 3,000 shares, this may be possible, but the trader may have to pay more than the quoted price for the shares or accept less than the quoted price to sell the shares. Breaking the transaction up into smaller trades may allow a trader to buy or sell the shares in question at the desired price.

Large companies tend to have high NMS figures because of their high liquidity levels. For example, a large company may often see millions of its shares traded in one day, which makes for an NMS in the tens of thousands of shares. In these instances, a trader can be pretty sure if they buy 3,000 shares, the prices quoted are good, and the order won't move the market.

Small companies have lower NMS figures because their shares tend to be less liquid. However, this doesn't necessarily mean that a trader can't purchase a number of shares larger than the NMS. Provided  the trade request is within the market makers quoted size, then a trader should be able to deal.

  1. Bid Size

    The bid size represents the minimum quantity of a security that ...
  2. Firm Quote

    A firm quote is a bid to buy or offer to sell a security or currency ...
  3. Make A Market

    Make a market is an action whereby a dealer stands by ready, ...
  4. Crossed Market

    A crossed market is a situation arising when the bid price of ...
  5. Quoted Price

    A quoted price is the most recent price at which an investment ...
  6. No Quote

    No quote refers to a stock or other security that is inactive ...
Related Articles
  1. Trading

    Market Makers Vs. Electronic Communications Networks

    Learn the pros and cons of trading forex through these two types of brokers.
  2. Trading

    Introduction to Level II Quotes

    Find out what's happening in a given stock with this service showing Nasdaq market makers' best bid and ask prices.
  3. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  4. Investing

    The Roles of Traders and Investors

    Discover how these two groups work together to keep the market functioning properly.
  5. Investing

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  6. Trading

    Direct Access Trading Systems

    DATs can dramatically speed up order execution - find out how this system gives novice traders an edge.
  1. Quote driven and order driven markets: What's the difference?

    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 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 >>
  3. How Can Trading Volume Exceed Shares Outstanding?

    The number of shares traded can be greater than the number of outstanding shares, but it's rare. Read Answer >>
  4. What do the bid and ask prices represent on a stock quote?

    The bid and ask prices are stock market terms representing the supply, or the shareholder, and demand, or investor, for a ... Read Answer >>
Trading Center