What is the role of Market Makers in stock markets and what are the strategies employed by Market Makers while trading ?
A market maker brings trading order in a stock by quoting both bid and ask prices and ensuring the spread doesn’t go haywire. He will place both bid and ask rates continuously, regardless of which direction the stock is moving. If the stock moves up, he will continue to place sell orders along with buy orders and if the stock is moving down, he will continue placing buy orders along with sell orders. He enables trading by quoting reasonable spreads and the difference in the spread is what he receives in return. He ensures anyone who walks in gets to play and keeps the game on!
Market makers are high-frequency traders on both the buying and selling side, to ensure that trades are executed at smaller spreads and at the rate at which the market moves.
Thank you for information about Market Makers.
During some additional reading about Market Makers on internet, it had mentioned Level 2 quote available on American stock exchanges. Please explain about Level 2 quotes; and are the Level 2 quotes made available in India by Zerodha ?
All brokers in India subscribe to Level 2 market depth data from NSE where they show the top 5 bids/offers on market depth and receive anywhere between 1 to 5 ticks per second from the exchange on their trading terminal.