"Market makers" is the term to describe brokerages that holds a certain number of a particular stock in order to trade that particular security. There is a degree of risk that is involved with this, but makes a great competition tool for those brokerages competing with others.
What these market makers do is they advertise the sale of these securities to investors. They quote a specific number of shares that they guarantee they will sell. In other words, the market maker has his or her own inventory of securities like single stock futures and they sell from that inventory. In the meantime, brokerage fees, commissions, etc. are acquired, allowing the market maker to make their profit.
This is a process that works for many and is becoming a way in which many brokers and advisors make trades happen.
The main advantage of using this technique is that the transaction can happen very quickly. The market maker, on the other hand, may take the securities from their own inventory or they will buy more to offset what they sold in order to keep their inventory up.
By expediting the trading process, individuals are able to have what they want when they want it very quickly. You can be on your way to earning within the same day you invest because the shares have already been purchased. All you, the investor, is doing is buying those shares off of your advisor.
Those who are market makers, tend to work in broker-dealer firms. This is simply a person or business that buys and sells securities. They act as both the dealer and the broker. This only applies to certain transactions.
To go more in depth, one must first look at who the broker is. The broker is the person who acts on behalf of clients in the execution of an order. The dealer, on the other hand is the person who conducts trades from their own account.
This makes sense in that the broker is buying the shares for their inventory and they are then conducting the trades from their own account rather than dipping into the market to buy shares and then taking the long route.
Mutual fund managers are the perfect example of those who may be market makers. The reason is because they may invest in a certain number of shares of a certain company and that's what makes up their large portfolios. All of these stocks and other securities are kept within this portfolio. Each time someone invests, they are added to the mutual fund pool and they become an investor in those securities.
The fact about mutual funds is that they grow. Stocks keep being added, cash is added, and other investments find their way in. The point of all of these different investment instruments is to offset the risk within the portfolio. If one investment fails during a specific time, then the others that are succeeding are pulling the entire portfolio so that the loss is minimized.
So when you know you are dealing with a market maker, you know you are dealing with a fast process. Since more and more brokers are using this method of investment so that they can eliminate a lot of the legwork that occurs when a person wants to buy securities, you have one very close to you. Talk to your financial advisor about the securities that they are holding. Remember that they won't hold something that they don't feel is the best and is going to bring a profit because, even while holding, they can lose money because they cannot sell for a price higher than the value.
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