You almost certainly take for granted that you can buy or sell some share or stock immediately. Place an order with the broker within seconds, it is implemented. Have you ever stopped to ask yourself how this is possible? Every time an instrument is bought or maybe sold there must be someone on the other side of the coin end of the transaction. When you want to buy 100 gives of Mcdonald’s, you must locate a willing seller and the reverse. It is doubtful that you are often going to find someone who is usually interested in buying or selling the same number at precisely the same time rapidly. This does not occur. So – how does this work? This is where the MARKET MACHINE comes in!!
The market maker is similar to a wholesaler. Customers turn up and leave all day long, a few returning goods to the stockroom, others leaving with brand new purchases from 8. 00 am until 4. thirty pm every weekday (in the UK). The difference with this operation is that the wholesaler has one item to trade, which is all similar. These items are continually traded. The only responsibility that the wholesaler/retailer has is that he must keep their doors open during marketplace hours, and he is responsible for establishing the prices, second by 2nd and hour by hour. He makes his cash by buying at a lower price and marketing at a higher price.
This really is known as the spread, and it has two components – the bid price and a reasonable ask price. He can make his money on the distinction between the two, which is their profit. This may only be pence or cents, but when you tend to be dealing in hundreds of countless shares it is a vast amount of cash.
Now – let me request you a question – what goes on when a customer comes in for any large buy order? However, there are insufficient goods accessible. A typical wholesaler would buy more products from the manufacturer to complete the order. Our wholesaler/retailer does not have this option, he has to encourage people to sell to him. Otherwise, he has not offered his customers. What exactly does he do? ( here’s a clue – this individual sets his own prices for your market!!! ) He has 2 options available. Firstly he could shift his prices quickly and
frighten people into panic selling. Alternatively might move his prices upward quickly and encourage reduced weight to take some profits along with selling. Let’s assume that they decide to take the first alternative, and he moves his price ranges down fast ( almost certainly on the basis of some fictitious item of news or gossip or possibly a world event)
Surprised? rapid, you shouldn’t be. This happens every hr of every day of every whole week in all markets worldwide. Is market manipulation – of course, it is. It also clarifies why markets fall more quickly than they rise: in the fall, the wholesaler/retailer is in a hurry to get fresh supplies of goods, and on the way less complicated, he is taking his moment to make profits. This technique is known as ‘ shaking the tree’ for apparent reasons!!! Naturally, he or she cannot frighten everyone an excessive amount. Otherwise, he could end up with lots of sellers and not enough customers (he could, of course, have got moved the prices up to inspire some clients to sell and also take their profit: there is always more than one way to epidermis a cat!!!! )
The wholesaler/retailer is, of course, the MARKET MANUFACTURER. They are professional traders. These are licensed and regulated and have approved to ‘make any market’ in the shares you would like to buy and sell. They are usually sizeable global banking organizations, usually together with thousands or tens of thousands of staff members worldwide. Some of them will be residence names, others you will never hear of, but they all have one part of the ordinary – they make large amounts of money. As you can currently see (I hope), the industry makers are in a unique,
in addition to a privileged position, of being competent to see both sides of the sector (supply and demand). The skin has the unique advantage of being able to place its prices accordingly. Currently – I don’t wish you to run away with the indisputable fact that the entire market is rigged; it is not necessary, as no one market producer could achieve this on their own, but the truth is that they do need to understand how they work with windows of opportunity as well as a variety of trading conditions to govern prices.
The above explanation is a vast remise, but the principle remains accurate. In America, the NYSE, in addition to AMEX, have a single new member known as a specialist that will act as the market maker for presented security. Other exchanges, such as NASDAQ, have several competitive market makers for the same security and safety. Do they ever work together? (I’ll leave you to be the judge of theirs!!!! ). On the London Exchange, there are official market designers for many securities (but not for shares in the primary and most heavily traded corporations, which instead use an electric-powered automated system called SETS).
Now, why have I spent much time explaining what they then do when actually due to see them at all? The reply is straightforward. As professional professionals, they sit in the middle of the industry, looking at both sides. They will know the balance between supply precisely and demand at any time. Naturally, this information will never ever be available to you, but we can interpret it from your chart using one single signal. That one indicator is QUANTITY. While they will use every single piece of news, world function, rumor, and gossip to control prices and the markets, this is certainly one piece of information they cannot hide (although also they delay larger orders).
Volume exhibits the activity of trading through the particular time period chosen, which is often anything from 1 second to 1 year. However, quantity does not tell us significantly, other than the number of securities bought and sold in the period. Comparing some day with another tells us a tad bit more, and it is then not difficult to view whether today’s volume will be high, low, or regular. If you have 20 people browsing a row, it is easy to observe who is the tallest, most minor, and average level. However, add the volume for the price spread for the point in time, and suddenly using sound judgment and the knowledge above, start reading the market.
Ould – Coulling is a full-time currency exchange trader providing free assistance and help to women professionals and investors around the world by means of her website. She has been recently trading for over 15 years, and has experience in a wide range of monetary instruments, including stocks, gives you, options, spread betting in addition to futures. For more information or to call Anna please click on the web page link below: trading, investing, gives you, options, forex, currency, forex trading, calls, puts.
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