Market Makers Explained: Liquidity Provision Guide
Imagine walking into a massive cloth market in Karachi’s Bolton Market or a dry port in Lahore. Every shop displays a price at which they are willing to buy fabric (the bid) and a price at which they are willing to sell fabric (the ask). Without these shopkeepers offering both prices simultaneously, you would have to wander around looking for someone who happened to want the exact roll of cloth you had at that exact...
Introduction: The Silent Engines of the Pakistan Stock Exchange Imagine walking into a massive cloth market in Karachi’s Bolton Market or a dry port in Lahore. Every shop displays a price at which they are willing to buy fabric (the bid) and a price at which they are willing to sell fabric (the ask). Without these shopkeepers offering both prices simultaneously, you would have to wander around looking for someone wh...
In the financial world, Market Makers are those shopkeepers. They are the specialized participants in the Pakistan Stock Exchange (PSX) who stand ready, throughout trading hours, to buy or sell securities. They do not trade because they have a strong opinion on whether Engro Corporation will go up or down today. Instead, they provide a service: Liquidity.
For Pakistan’s economy to grow and attract foreign investment (like from China under CPEC or from Gulf nations), the capital markets must be deep, liquid, and attractive to large investors. Without market makers, the PSX would be a fragmented, volatile wasteland where even buying a small chunk of Hubco or Pakistan Petroleum Limited (PPL) would move the price drastically.
This guide will explain exactly how these "silent engines" work, why they take the other side of your trade, and how they keep the Pakistani economy flowing.
Part 1: Liquidity Provision – The Lifeblood of PSX What is Liquidity? In finance, liquidity refers to how quickly and easily an asset can be bought or sold without causing a dramatic change in its price. A stock is highly liquid if you can sell 1,000 shares instantly at a price very close to the last traded price.