What’s inside Quote’
Inside quotes, the best bid and ask prices offered to buy and sell a security amongst the competing market makers.
Fracture inside a Quote’
Inside the quotes are a Central part of the exchange infrastructure. These quotes are reported by market makers who seek to connect buyers and sellers through the BID-ask trading process. As a rule, within the text not only with the market makers on-Exchange and OTC trading systems, however, these quotes do not affect the price at which trades occur.
The BID-ask Trading Process
The BID-ask trading process is that facilitates the execution of transactions on the foreign exchange market. The market maker can be an individual or computer systems facilitating trades. These market makers use inside the quotes to determine price levels, which are then to generate profits from the resulting BID-ask spread.
Inside bid and ask prices quoted to the market maker. Thus, the market maker seeking to execute a warrant to purchase will look for the cheapest price quotes and the highest ask quote order to create the greatest BID-ask spread to profit.
During the execution of sell orders, the same scenario usually occurs. The market maker still needs to identify the buyer on exchange of shares for sale. Thus, the market maker undertakes to buy shares at the inside BID price and sell at higher domestic price ask. For the market maker for the transaction, the price must always be above the purchase price to provide a profit from the spread between the bid and offer.
Supply, demand and liquidity
In General, when supply goes up, prices go down and the demand goes down as well. Conversely, when demand is high, prices rise and supply is relatively lower.
On securities markets, a high level of safety results from the larger number of investors willing to sell. When supply is high and pushes the price down. Negatively, an increased demand for safety results from a larger number of interested buyers, which will cause the supply reduction and price increase. Overall, the supply and demand of liquidity, which is an important variable, involved in the BID-ask spread. When spreads are wider, it shows a low level of liquidity. When spreads are tighter, it shows higher liquidity, faster changing quotes.
As an example, consider the market the manufacturer is seeking to execute a trade on the XYZ stock. The demand is high in the warehouse and there are few buyers willing to pay a relatively high price. Alternatively, supply is low and fewer shareholders are willing to sell, demanding a higher price. BID-ask spreads tend to be wider in this case, allowing the market maker to earn more profit.
When the offer for shares is high but demand is low, it can reduce liquidity in the market and cause fewer transactions must be executed because the market maker has less opportunities to earn a profit. In this case, market makers must identify buyers to match with sellers, and if fewer buyers are available at an adequate price level, it can reduce the overall liquidity and lead to unprofitable crossed the market.