Learn about market makers and their function

1.4.5 · Stock-Market › Market Participants

WHAT is a market maker?

In dono quotes ke beech ki distance poore business ki jaan hai:

HOW a market maker actually earns (the round-trip)

Figure — Learn about market makers and their function

WHY markets need them (their function)

Active Recall

Recall Reveal karne se pehle try karo

Market maker kaun si do prices quote karta hai, aur kis ke viewpoint se?
Market maker ka round-trip profit derive karo.
Spread strictly positive kyun honi chahiye?
Inventory risk kya hai aur yeh quote width ko kaise affect karta hai?
Kya tum bid par kharidoge ya ask par?

Recall Feynman: 12-saal ke bachche ko samjhao

Market maker waise hai jaise airport par money-changer jo hamesha apna table khula rakhta hai. Woh kehta hai: "Main tumhare dollars ₹82 mein khareedunga aur tumhe dollars ₹84 mein bechhunga." Woh ₹2 ka gap har baar rakhta hai jab koi trade karta hai. Woh gamble nahi karte ki dollar upar jayega ya neeche — woh bas chahte hain ki bahut log unke table se paise swap karein. Yeh gap unki hamesha open rehne ki payment hai taaki tumhe kabhi intezaar na karna pade. Agar achanak sab log sirf unhe dollars bechein aur koi kharide na, toh woh dollars ke bade dher mein stuck ho jaate hain jo value lose kar sakta hai — yahi unka scary part hai, isliye risky din mein woh apna gap bada kar lete hain khud ko protect karne ke liye.

Connections

Liquidity and Depth in Markets
Bid-Ask Spread and Order Books
Types of Market Participants
Price Discovery Mechanism
High-Frequency Trading
Order Types — Market vs Limit Orders

Market maker kya hota hai?

Ek aisi firm jo kisi security ke liye continuously bid (buy) aur ask (sell) dono prices quote karti hai, liquidity provide karti hai taaki doosre immediately trade kar sakein.

Bid aur ask kis ke perspective se quote hote hain?

Market maker ke — woh bid par KHAREEDTE hain aur ask par BECHTE hain.

Kya tum (ek retail trader) bid par kharidoge ya ask par?

Ask par (higher price par); tum bid par bechte ho (lower price par).

Bid-ask spread define karo.

Spread = P_ask − P_bid; market maker ki compensation liquidity provide karne aur inventory risk uthane ke liye.

Market maker ka round-trip profit derive karo.

1 share P_bid par khareedon, 1 share P_ask par becho → profit = P_ask − P_bid = spread.

Spread positive kyun honi chahiye?

Zero spread mein kuch nahi kamaya jaata jabki inventory risk phir bhi hota hai, isliye koi bhi rational firm free mein liquidity provide nahi karegi.

Inventory risk kya hai?

Yeh risk ki market maker ko ek aisi security hold karni padti hai jis ki price unke against move kare unload karne se pehle.

Volatile/illiquid stocks mein spreads kyun wide hoti hain?

Adverse inventory moves ka zyada risk aur inventory unload karna mushkil hota hai → market makers zyada spread demand karte hain insurance ke taur par.

Relative spread kya hai aur normalize kyun karte hain?

(P_ask − P_bid)/P_mid; mid-price se divide karne par spreads alag-alag price levels ke stocks mein comparable ho jaate hain.

Kya market makers directionally biased hote hain?

Nahi — woh neutral rehne ki koshish karte hain, balanced flow par spread kamaaते hain chahe price direction koi bhi ho.

Market maker ke chaar functions list karo.

Liquidity provide karna, continuous prices ensure karna, order imbalances se volatility reduce karna, price discovery mein madad karna.

Mid price ka formula kya hai?

P_mid = (P_bid + P_ask)/2, fair value ka ek estimate.