Market makers

W

wonereheb

Reading this article

http://www.reuters.com/article/2012/05/25/us-facebook-nasdaq-losses-idUSBRE84O18S20120525

says "A market maker is a firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price."

Why is there a separate firm to do this? How does it work?

If I'm a hedge fund and I want to buy 100K shares of something at a certain price, why would a separate firm sell it to me instead of just other sellers selling it to me?
 
What if at the moment, there are no natural buyers/sellers near the last sale. MM add depth and liquidity when none is present.
 
Somebody still has to clear the trades, even if there is a BUYER/SELLER for a like amount at an agreed price.

If Hedge Fund A trades with Hedge Fund B in a Dark Pool, it is not free to both sides.

You can trade with any number of ECN's without a market maker.

Why am I even responding to this jibberish???
 
Quote from rmorse:

What if at the moment, there are no natural buyers/sellers near the last sale. MM add depth and liquidity when none is present.
More...

How does MM know where to add depth and liquidity?
 
Quote from Dura:

How does MM know where to add depth and liquidity?
More...

If we are talking about equity market makers, they generally run an automated strategy. They are constantly bidding and offering somewhere and hedging with stocks that are correlated. So if they buy to much in related equities on 100 different symbols, they might drop their bids in everything until they sell enough to be in balance. They are trying to lock in rebates and fractions of a point on millions of trades. Some MM might pick sides. Lean long, lean short. It would depend on their strategy.

The direct answer to your question. They bid and offer all day somewhere.
 
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