Monday, April 27, 2009

continuous versus call market(2)

Such a situation could be exploited by anyone willing to take temporary positions in securities,ironing out transitory variations in demand and supply and making a profit thereby. This is the role of a dealer or market-maker,whether officially identified as such or not.Only greed and avarice are required to attract such people,but in the pursuit of personal gain they generally reduce fluctuations in price unrelated to changes in value,thereby providing liquidity for investors. In some markets dealers compete with each other in order to offer the best possible terms for a given security. The London stock Exchange is,in essence,a physical location where dealers ("jobbers")take orders from brokers. In the over-the-counter market in the United States,dealers,bid and ask prices are communicated to brokers via a computer network.On the floor of the Chicago Board of trade dealers in commodities mingle with brokers in the "pits". The New York stock Exchange,to facilitate a continuous market,as-signs specialists to stocks.The specialist is allowed to deal for his or her own account.but only if no better offer is forthcoming from '"the floor" --i.e.,from brokers acting for their customers or themselves. The specialist its allowed to make a profit but is also charged with maintaining a "fair and orderly market"---a requirement both ill-defined and difficult,if not impossible,to enforce. In return,specialists are allowed to maintain books of unexcited limit (and stop-loss)orders. Whenever possible,a specialist executes orders from the book,crossing them with orders from the floor,or simply trading directly ,using his or her own account receiving in return a commission for serving as a "broker,s broker".

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