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.

RELATED TERMS
  1. Indicative Quote

    An indicative quote is a forex price provided by a market maker ...
  2. Position Sizing

    Position sizing refers to the number of units invested in a particular ...
  3. Quote

    A quote refers to a price determined at a specific instance of ...
  4. Quoted Price

    A quoted price is the most recent price at which an investment ...
  5. Trade Through

    A trade through is an order that is carried out at a suboptimal ...
  6. Third Market Maker

    A third market maker is a third-party securities dealer who is ...
Related Articles
  1. 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.
  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. Trading

    An Introduction To Securities Markets

    The global securities market is constantly evolving. Discover the most popular market structures currently in use.
  4. Investing

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  5. 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.
  6. Investing

    The Roles of Traders and Investors

    Discover how these two groups work together to keep the market functioning properly.
  7. Insights

    The Market Participant Playbook

    Find out what effect institutional investors have on the stock market and individual traders.
  8. Trading

    How To Avoid Closing Options Below Intrinsic Value

    To get the best return possible on your options trading, it is important to understand how options work and the markets in which they trade.
RELATED FAQS
  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. 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 >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center