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Finance GlossaryMarket Maker
Market Maker
Definition of Market Maker
A market maker is an individual or a firm that continuously quotes bid (buy) and ask (sell) prices in order to provide liquidity and ensure smooth trading. They act as intermediaries, buying from sellers and selling to buyers from their own inventory, which facilitates smooth, efficient trading and reduces price volatility for other investors. This role is generally played by financial institutions like brokerage firms or investment banks.
Related Terms
All Or None Order
An all or none order is an instruction to execute the entire order or none of it. For example, you place an order for 1000 shares with a contingency that it should be an all or none order.
If so, then the order will be not executed if 999 shares are available. The order will only go through if 1000 shares are available. Otherwise, the order will be canceled.
If so, then the order will be not executed if 999 shares are available. The order will only go through if 1000 shares are available. Otherwise, the order will be canceled.
Beta Coefficient
Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.
The formula to calculate the Beta coefficient is:
Beta (β) = Covariance (Ri, Rm) / Variance (Rm)
Where:
The formula to calculate the Beta coefficient is:
Beta (β) = Covariance (Ri, Rm) / Variance (Rm)
Where:
- Ri = a stock's return
- Rm = overall market's return
- Covariance = ups & downs of stock returns versus ups & downs of market returns
- Variance = the difference between market returns and its average
Generally, Beta values are of four types:
- Beta < 1.0: stock less volatile than the market
- Beta = 1.0: stock just as volatile as the market
- Beta > 1.0: stock more volatile than the market
- Negative Beta: stock shares inverse relation with the market
Matching Orders
Matching Orders refers to the process by which a stock exchange pairs buy and sell orders, prioritising based on price and time (Price-Time Priority). If a buyer’s price matches a seller’s price (order matching), a trade is executed. This automated mechanism ensures fair, transparent, and efficient order execution in the market.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements on a scale of 0-100. Readings above 70 signal overbought conditions, suggesting potential reversals, while below 30 indicates oversold levels. Traders use 14-period RSI to identify entry/exit points and confirm trends in stocks or indices.
BSE
Bombay Stock Exchange or BSE is a stock exchange that allows companies to issue new securities through IPOs or FPOs and enables traders & investors to buy and sell securities like shares and ETFs. Established in 1875 under a banyan tree in Mumbai, BSE is the oldest stock exchange in India and Asia.
Intrinsic Value Of Share
Intrinsinc value of a share is the actual value of a stock, not the value at which it is trading in the secondary market. There are multiple ways to calculate the intrinsic value of a share. The most common method include discounted cash flow while adjusting the time value of money to calculate the present value of the stock is also a popular method.
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