![]() The purpose of the market maker is to facilitate efficient trading of securities. The process of how this transfer is completed has changed a lot over the years in some ways and in other ways it has not. In New York, it was under a buttonwood tree along a street called Wall Street. When you think back on how the markets started, it was individuals gathered around, with somebody selling something and somebody buying something at the edge of town. It all relates to the trading value in the security and the number of market makers trading in that individual security. The spread can be very small (maybe only $0.0001) or could be very large (like $5.00 or more). The spread between the two is how a market-marker gets paid. The Ask is the price that a seller of a security gets. ![]() The Bid is the price the buyer of the security pays. Every security that is traded has a Bid and an Ask price. To understand it in greater detail you have to start with how our markets operate and the function that a market maker performs. Payment for order flow is the transferring of profits made when a security is traded, back to the institution that directed the order to them (Market Maker). The trading of securities involves Market Makers – who facilitate the execution of trades and earns revenue in doing so. This practice is also responsible for lowering the cost of security trades. You should hear more about this in the coming future as the federal government is paying more attention to this practice, which was pioneered by Bernard Madoff (you might remember how this ended for him). In the news lately, you might have heard a conversation about payment for order flow.
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