The Hidden Players in Every Trade
Market makers are the intermediaries that ensure you can always buy or sell stocks. Understanding them can improve your trading.
What Market Makers Do
They continuously quote both buy and sell prices, providing liquidity. They profit from the bid-ask spread while taking on inventory risk.
Payment for Order Flow
Many brokers route orders to market makers who pay for the privilege. This is how commission-free trading is possible, though it can affect execution quality.
Impact on Your Trading
- Wide spreads cost you money on each trade
- Large orders may not execute at the quoted price
- Market orders in illiquid stocks can result in poor fills
How to Trade Smarter
Use limit orders, especially for less liquid stocks. Break large orders into smaller pieces. Trade during regular market hours for best execution.