Market making plays a crucial role in ensuring market efficiency. Here's how:
Facilitating Trade Execution
Market makers provide continuous bid and ask prices, allowing market participants to buy or sell assets at fair prices without significant delays. This enhances the speed and efficiency of trade execution.
Market makers actively work to minimize spreads, thereby reducing the cost of trading for market participants. A narrower spread encourages more trading activity, fosters market liquidity, and improves overall market efficiency.
Increasing Market Depth
Market makers contribute to market depth by providing liquidity and actively participating in buying and selling activities. Their presence ensures that there are sufficient buyers and sellers in the market, enabling smoother transactions.