True, the MM buys then sells, so when you sell for $X, the MM pays $X, then if someone is willing to pay $X+2, the MM sells for the highr price and makes profit.
So, in every single transaction the buyer and the seller pay/receive the same amount. The middle man buys then sells (or the other way round) but desnāt take a cut of transactions between other parties.
If he is buying at one price and selling at another he is making a profit a spread.
He also has no choice on buying or selling
āThe EMS or exchange market size is the minimum number of shares that a market maker is obliged to quote a firm two way price on the trading system . This does not ensure the price is equal to the market quoted price at that time.ā
A two way price. A buying price and selling price. Two different numbers.
As in i will buy of you for 69p or i will sell to you at 71.5p
I think valuation should be based on 69p not 71.5p or the middle price.
Yes, two different numbers posted, for two different trades. They are posting a Buying and a Selling price, but only one of the two can get consumed in a single transaction.
You cannot Buy and Sell in the same transaction.
There will be one transaction, with one price, in which you may have Bought, and the counterparty (regular investor or MM) has sold.
And once more, I refer you to my last post; if there was no MM at all (which happens in many markets), there would still be (and still is!) a spread!
Who āpocketsā it then?
As stated the market maker is both the buyer and the seller
Market makers arenāt the only ones with direct market access. If for example a sell side trader in a large bank puts forward a better price, itās their price that would be matched. The market maker has no guaranteed spread to work with. They can only decide the prices for a given order quantity that they are prepared to buy or sell at, like any other market participant. Itās when there is a match that the contract is established and the transaction takes place. This is in effect the real (single) price, transient though it is, lasting only until the next transaction takes place. Notice the buyer and seller share the same price. A market maker is never guaranteed to make a profit. They may have to sell at a lower price than they bought at.
They dont have any choice on how many they buy or sell they have to make a market at the EMS number.
I didnāt say they were guaranteed a profit. Thats why thereās a difference between the two prices.
I think valuation should be based on the best price i can sell the shares i bought.
So for instance if i bought at 71.5 and the best i can sell at is 69p then the valuation of my holdings should be number of shares times 69p.
That figure and that figure alone. Any other figure would be false.
Youāve conveniently ignored my little quizz.
In markets where there are no Market Makers (which there are plenty!), who āpocketsā the spread?
Your little quiz is meaningless
You are referring to over the counter markets. i am talking about the London stock exchange.
And i am talking about valuation. What should my holding be valued at?
Again it should be valued at what i can sell it at.
The LSE is not a market maker. It is an exchange.
And the LSE does not pocket the spread. They have a flat / % of transaction fee schema, which is individual and separate from the trading price.
I am indeed referring to on Exchange trades, for securities that Market Makers will not touch.
Or letās see, the first Market Maker dates the early 1900s.
What then of the spread on the NYSE, available since the late 1700s? āFuture feesā?
I dont recall saying lse was a market maker?
And what has NYSE in the 1700s got to do with it?
Your getting desperate.
Your previous message, before edit, graciously mentioned that my quizz was misleading, because referring to OTC markets.
Since youāve cleared this āhassleā out of the way dishonestly, now you can answer my question: who pockets the spread in market where there are no market makers?
You mean OTC ?
And as you appear to be unable to grasp my original post
The last sentence does not apply to you.
Once more, no, I do not mean OTC. I mean on exchange trading, where there are no market makers.
As T212 already answered, and then we, they use neither Buy, nor Sell, nor Middle, but LTP.
Odd how last traded price is always 71p or greater and never below 70 as in 69p.
Or are there only buyers in the market
Well, there are precisely just as many buyers than there are sellers.
So every time i am quoted a price to sell it is below 70 as in 69p and evertime i am quoted a price to sell it is always 71p or above? Both quoted at the same time
Youāre being quoted simultaneously the best available Buying price and Selling price (respectively the Ask, the lowest price at which some investor is willing to sell that security to you, and the Bid, the highest price at which some investor is willing to buy that security from you).
If you execute a Market Buy, you will consume the Ask (the 71.50 in your example); the price of the transaction is 71.50, and that would be the new LTP (historical price). The new Ask would either be the same (if there are more shares available for sale at this price), or it would move higher if all shares available have been consumed.
Initially the Bid would not change whatsoever, and stay at 69.00 (since no transaction consumed that price, the people that were willing to Buy at this price are still willing to do so, theyāve just been outbid by you!). As more and more buyers consume higher and higher Ask prices, eventually the order book would fill with higher and higher Bid.
In a low liquidity market, there just wouldnāt be any interest to point a higher Bid price from investors, resulting in a very high spread; in essence, the Buying price would keep getting higher and higher, but if you tried to Sell, you would still meet a very low Bid price.
Thatās where a market maker will intervene; as the price rises and rises, the market maker will also post new Bid prices going higher and higher, keeping the spread narrow.
Of course, in this example, if you were to instead Sell your share, the exact reverse scenario would happen; the Bid would get consumed (69.00), which is the price you get, and the buyer also gets. With subsequent Sell orders, the market price (LTP and Bid) would move down and down, and hopefully the Ask would follow suite, with or without MM interventions.
In both these scenarios, when a transaction happens (so when you exchange shares with someone else), both parties receive/dispose their share at the same unique price.
Could you sell and buy your share at that same price? If you were both the buyer and seller in the same transaction, yes, and heck, at any price you want! But in every transaction, you are either the buyer OR the seller, not both. And the fact that you decided to buy a share at 71.50 does not mean that anybody else would agree to buy a share at this price; if you try to sell it right away, chances are the best available Bid will still be 69.00, which was already beforehand the public price of the highest bidder.
This thread is ridiculous. What makes you think @Zergui is being dishonest?
Agree with this. All my other brokers represent my portfolio at the last known value I could sell my position at, which is effectively what it is worth to redeem.
LTP can fluctuate between Bid/Ask daily, so from even a performance point of view does not necessarily correlate well to the market movement of the security.
I just think the 212 reporting as indicitive.
A broker of mine does this, but the market maker polled price for selling is almost always higher. The quoted bid and ask prices (before the polling are just from the exchange order book. They are whatās left there waiting for someone to pick up. They are not necessarily the best prices available. On the other hand if I put in a large order, the prices polled are worse than the quoted bid and ask prices, the latter not being obtainable without breaking the order up into smaller chunks. And then the prices can move substantially over the course of the separate transactions.
To me, the bid and offer prices arenāt very useful. For valuation and performance purposes Iām interested in the price I actually paid and my idea of what price I would be prepared to sell the stock at currently (collapsing to what I actually sold at when I do sell). I use LTP rather than bid price as what I consider the best proxy for value when I have the choice in automated portfolio valuations. I never have to buy or sell at any quoted bid price. I can always choose to buy or sell at either my own price or not at all.