5 Questions
True or false: In a price-driven market, market makers only provide bid prices to buy securities?
False
True or false: In a price-driven market, market makers publicly post their bid-ask prices?
True
True or false: In a price-driven market, market makers continuously adjust their quotes to reflect supply and demand?
True
True or false: The ask price in a price-driven market is sometimes called the offer price?
True
True or false: Customers in a price-driven market turn to the market maker who provides the best quote?
True
Study Notes
Equity Markets: Price-Driven vs Order-Driven Markets
Price-Driven Markets
- A continuous market where transactions take place all day, and market makers ensure market liquidity at virtually any point in time.
- Market makers publicly post their bid-ask prices to induce orders and adjust their quotes continuously to reflect supply and demand for the security and their own inventory.
- Also referred to as quote-driven markets or dealer markets.
- Market makers quote both bid price (the price at which the dealer offers to buy the security) and an ask price (the price at which the dealer offers to sell the security).
- The ask price is also known as the offer price.
- Quotes are firm commitments by the market maker to transact at those prices for a specified transaction size.
- Customers typically turn to the market maker who provides the best quote.
This quiz will test your knowledge of equity markets, specifically the differences between price-driven and order-driven markets. Learn about continuous markets, market makers, bid-ask prices, and how they affect market liquidity. Test your understanding and grasp of these concepts with this quiz.
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