Market makers employ various mechanisms and tools to ensure the stability of asset prices. Here are a few examples:
Market Monitoring
Market makers closely monitor market conditions, including price movements, order book dynamics, and news events. This allows them to assess the supply and demand dynamics and make informed decisions to maintain stability.
Dynamic Quoting
Market makers adjust their quotes in response to changes in market conditions. By continuously updating bid and ask prices, they provide a stable reference point for buyers and sellers and prevent sudden price swings.
Hedging Strategies
Market makers employ hedging strategies to manage their risks and stabilize prices. They may hedge their positions by trading correlated assets or using derivatives to offset potential losses arising from market movements.