Market Makers in India — Explanation with Best Example 2021

Among the different stock market participants, the market maker is a significant connection in offering liquidity to equities.

The exchanges have discovered the idea of having full-fledged market makers in India to offer liquidity in equities on several occasions.

Market makers, like traders, work to build markets by providing liquidity and collecting small margins.

Who are Market Makers in India?

Market makers are stock exchange members who are designated by the exchange to boost liquidity and frequency of transactions into equities.

Every market maker shows buy and sell prices for a certain number of stocks. When a buyer places an order, the market maker promptly sells from its own stocks or supply of those stocks to fill the order.

Market makers are paid for their risk by being authorized to issue two-way bids in the market, which include the buy and sell values mentioned collectively, with the variance being the profit.

The market maker system minimizes the time necessary to complete a deal and the expense of dealing in that stock, enabling for the trading of a large number of stocks.

List of Market makers in India

There are many Market makers in India. You can find the lists on below link:

Why a Stock Need a Market Marker in stock market?

The easiest approach to comprehend market making is to imagine a world without market makers. Consider Stock X, which is now trading on the market with the following bids.

Any trader may perceive the danger in the trading price mix shown above. If you are a buyer, the lowest price you can get is Rs.2,431. If you want to acquire roughly 100 shares, you would have to pay up to Rs. 2,431 per share, which is Rs. 19 higher than the current price.

Furthermore, if you want to sell the shares, you may do so at the best price of Rs.2,412. And if you want to sell roughly 1,000 shares, you’ll have to drop around Rs.19.

Even the most inexperienced investor can see that there are two types of dangers here.

Risk 1

To begin, the difference between the best purchase and the best sell is Rs.19. It is seldom more than 10–15 paisa in liquid stocks.

Risk 2

Similarly, the difference between consecutive ticks cannot be greater than 5 paisa, which is too much in this situation.

This is where market makers come into the picture.

The Role of Market Maker

The market maker is an important stock market player who, like any trader or arbitrageur, is looking to profit. As a result, the market maker will usually provide a buy quotation at 2,412.35 and a sell price at 2,412.75. The margin on which the market maker will operate is 40 paisa.

There are, of course, extra transaction expenses, and you may be wondering what margin the market maker will make. These market makers are often volume-driven rather than margin-driven. They are able to profit since they perform enormous quantities on a regular basis.

Nevertheless, it is a dangerous business since there is no certainty that both sides of your transactions will be carried through. That is the chance that the market maker is willing to take.

Originally published at https://profitmust.com on May 30, 2021.