What is a Equity / Debt Market Maker?

A market maker is a firm who quotes both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the turn or the bid/offer spread.

In foreign exchange trading, where most deals are conducted Over-the-Counter and are, therefore, completely virtual, the market maker sells to and buys from its clients. Hence, the client’s loss is the market-maker firm’s profit and vice versa. Most foreign exchange trading firms are market makers and so are many banks, although not in all currency markets.

Most stock exchanges operate on a matched bargain or order driven basis. In such a system there are no designated or official market makers, but market makers nevertheless exist. When a buyer’s bid meets a seller’s offer or vice versa, the stock exchange’s matching system will decide that a deal has been executed.

The London Stock Exchange, among others, have a single exchange member, known as the “the shop,” who acts as the official market maker for a given security. In return for a) providing a required amount of liquidity to the security’s market, b) taking the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders, and c) attempting to prevent excess volatility.

Other UK exchanges, most prominently the Alternative Investment Market, employ several competing official market makers in a security. These market makers are required to maintain two-sided markets during exchange hours and are obligated to buy and sell at their displayed bids and offers.

Market Makers have the ability to naked short a stock, i.e., selling it without borrowing it. In most situations, only official market makers are permitted to engage in naked shorting.

On the London Stock Exchange (LSE) there are official market makers for many securities (but not for shares in the largest and most heavily traded companies, which instead use an automated system called SETS). Some of the LSE’s member firms take on the obligation of always making a two way price in each of the stocks in which they make markets. It is their prices which are displayed on the Stock Exchange Automated Quotation system, and it is with them that ordinary stockbrokers generally have to deal when buying or selling stock on behalf of their clients.

Proponents of the official market making system claim market makers add to the liquidity and depth of the market by taking a short or long position for a time, thus assuming some risk, in return for hopefully making a small profit. On the LSE one can always buy and sell stock: each stock always has at least two market makers and they are obliged to deal.

Unofficial market makers are free to operate on order driven markets or, indeed, on the LSE. They do not have the obligation to always be making a two way price but they do not have the advantage that everyone must deal with them either.

If I work in Equity / Debt Market Making what will I be doing?

When brokers and sales traders receive buy and sell orders they will ring you up and ask you to make them a price, depending on your order flow you will make them a price in order to be left an order to work throughout the day. Once you work an order for a broker or sales trader your job will be to get the best price for them.

Your job is to make a profit by selling securities above the price at which they were bought or below the price they were shorted.

You will determine prices by studying the supply of and demand for securities. When pessimistic news about the fortunes of a company is released you may be forced to lower the price. A shortage of a particular security enables you to raise the price in order to attract sellers. By reading financial papers and reports produced by investment analysts, you obtain a picture of market trends. You will use computerised information databases to obtain the latest, constantly updated financial news.

Once buying and selling prices have been set, you will inform stockbrokers and other market makers through the Stock Exchange Automated Quotations System.

You will spend most of your time in front of a number of screens on the phone. You will spend the day trying to put together buyers and sellers in order give the best price to brokers and sales traders.

Typically, market makers work from 7:00am – 5:00pm Monday to Friday, in an extremely pressured environment.

How do I get a graduate scheme / internship / entry level job or career in Sales Trading?

Obtaining a graduate scheme, internship or entry level role in equity / debt market making can be very challenging and competitive – though very achievable by getting your application, CV, interview and general approach right. You can guarantee that ninety percent of applicants for equity / debt market making roles will not know how to apply, so getting your application in the top ten percent makes things a lot more achievable.

Approaching the company in the right way will make all the difference. Combining the right approach with a strong interview (and in some cases assessment centre) writ a strong focused tailored CV will go a long way. Make sure you have gone through the free videos on this sight by entering your name and email address in the top right of this screen underneath the video. Once you have filled this in you will have instant access to everything you need to secure your career in equity / debt market making.

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