Market Makers Explained: Liquidity Provision Guide for the Pakistan Stock Exchange
In the bustling world of finance, the ability to buy or sell an asset instantly is something many investors take for granted. Whether you are trading a blue-chip stock like Oil & Gas Development Company (OGDC) on the Pakistan Stock Exchange (PSX) or a government bond, the ease with which your order is executed is not merely a matter of chance; it is the result of a carefully engineered system designed to provide liq...
Introduction In the bustling world of finance, the ability to buy or sell an asset instantly is something many investors take for granted. Whether you are trading a blue-chip stock like Oil & Gas Development Company (OGDC) on the Pakistan Stock Exchange (PSX) or a government bond, the ease with which your order is executed is not merely a matter of chance; it is the result of a carefully engineered system design...
This comprehensive guide will demystify the role of market makers in the stock market , exploring how they function, how they profit, and why they are indispensable to modern financial markets. We will pay special attention to the evolving landscape of the Pakistan capital market, examining the structure of the PSX, the regulatory environment, and the specific challenges and opportunities that define market making i...
What is Market Making in the Stock Market? At its core, what is market making in stock market terms? It is an activity where a participant in a financial market—the market maker—stands ready to buy and sell a specific security at all times during a trading session. They do this by continuously displaying two quotes on the exchange's order book: the bid price (at which they are willing to buy) and the ask price (at w...
The primary goal of a market maker is not to speculate on the long-term direction of a stock's price but to profit from the difference between these two prices, known as the bid-ask spread. In Pakistan, these participants are formally recognized by the PSX as Designated Market Makers (DMMs) .
Imagine a market maker for a stock like Lucky Cement (LUCK). They might quote a bid of PKR 900.00 and an ask of PKR 905.00. If a seller accepts the bid and a buyer accepts the ask, the market maker pockets the PKR 5.00 spread. In performing this simple act repeatedly, they provide an invaluable service: liquidity provision in stock market .