Traders and market makers
Traders and market makers are essential players in financial markets, ensuring liquidity and facilitating the buying and selling of securities.
1. Traders
- Jurisdiction: Traders buy and sell securities on behalf of clients or for their own account. They aim to profit from price movements in various financial instruments such as stocks, bonds, and commodities.
- Example: A day trader might buy stocks of Tesla in the morning and sell them by the afternoon, capitalizing on short-term price fluctuations. Similarly, an institutional trader at a mutual fund might buy large volumes of shares in a company like Apple to adjust the fund's portfolio.
2. Market Makers
- Jurisdiction: Market makers are firms or individuals that provide liquidity to the market by continuously buying and selling a specific security. They quote both buy and sell prices (bid and ask), ensuring there’s always a market for that security.
- Example: Citadel Securities acts as a market maker for stocks like Microsoft. They quote both a bid price (the price they are willing to buy) and an ask price (the price they are willing to sell), ensuring investors can always buy or sell shares without waiting for a matching buyer or seller.
Key Functions
- Traders: Execute orders to buy or sell securities, either on behalf of clients or for proprietary trading.
- Market Makers: Facilitate liquidity by offering buy and sell prices for securities, enabling continuous trading.
In summary, traders engage in buying and selling for profit or investment strategies, while market makers ensure liquidity in the market by offering both buy and sell prices, making it easier for investors to trade securities.
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