Markets, Prices, and Marketmaking


What is a “market”? The typical person off the street would probably say that a market is a place where trading occurs. While responding, that individual might have in the back of his/her mind visions of large, loud, and aggressive men in brightly colored jackets yelling and screaming at each other on traditional exchange floors. But does a market have to be a place? No. There are many types of markets: supermarkets (where you can purchase everything from food to flowers, detergent to DVDs), flea markets (where people buy and sell used items), black markets (in which illegal or illegally acquired commodities trade hands), stock markets, meat markets, money markets, and farmers markets. In short, there are many different institutions that we identify as a market. Nevertheless, when many of us think of a market, we tend to think of the organized financial markets and more explicitly, the trading floors of the securities exchanges.
Indeed, mention of “the” stock market brings to mind Wall Street and the New York Stock Exchange. (But did you know there are local stock exchanges around the United States: Philadelphia, Chicago, Boston—many of which are now electronic?) In the realm of equities (or stock), there is a distinction drawn between “listed” (as in “listed on the New York Stock Exchange” or “the Big Board”) and “OTC” (as in over-the-counter). For many who work in equities, OTC refers to a NASDAQ stock (that ...

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