Capabilities of Market Makers

To understand the capabilities of market makers, one should know the limited market depth available to any participant:

1) Data featuring the nearest (best) placed 10 bid and 10 ask limit orders shows the price and number of contracts (Level 2).

2) Data featuring each transaction made shows the price, time, and number of contracts (Time & Sales).

CME Group market makers use the full market depth available to the exchange, namely:

1) Data featuring all existing placed limited orders

2) Data featuring all existing placed stop orders

3) Data featuring all open positions: price, volume, and side of order (buy/sell)

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2 thoughts on “Capabilities of Market Makers

  1. Generally speaking, intermediaries can add liquidity to a market in three ways: (a) as a Dealer who uses its own capital to take proprietary positions in the market; (b) as a Market Maker who uses its own capital to take proprietary positions but who has obligations to provide liquidity, usually getting certain benefits in return; and (c) as a Specialist who provides liquidity to the securities in which it specializes.

  2. The fundamental analyst carefully analyzes supply and demand data. In physical commodity markets, such as crude oil or gold, that could be estimates of production and usage. In financial markets, such as stock indexes or interest rates, it could be weekly and monthly U.S. employment reports.

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