Market-Making Mechanics

The basis for any investment market is just that—a market. Markets are locations (physical or virtual) where sellers and customers convene to exchange goods, or in our case, financial instruments. If you’ve ever watched business news on television, you’ve probably seen a shot of the New York Stock Exchange (NYSE)—often companies stage publicity events where a representative rings the bell to open the day’s trading before the cameras. In the NYSE, shares of stock in U.S.-listed companies are exchanged. Prices of each exchange are tracked to reveal trends in interest in those shares—rising prices indicate rising appeal (more buyers than sellers), while falling prices indicate the opposite.

Investors do not occupy ...

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