If the market maker sets the bid price too high, the...

If the market maker sets the bid price too high, the following may happen: 1 Point Too many investors will be willing to sell to the market maker and as a result, he will build a large inventory of shares. Too many investors will be willing to buy from the market maker and as a result, he will end up with a large short position on the stock. If the market makers set the ask price too low, they will end up with a large short position - why? In both cases there is a cost to the market makers that they will attempt to

Transcript

00:01 Hello students, here is a question.

00:02 Bid offers can define as? so, this is our first question and we have four options.

00:08 We have to choose the right options from this.

00:13 So, a bid offer is a price which market is a willing to buy or sell the security of derivatives.

00:20 That was the right answer.

00:23 That is an option c.

00:25 A market, a market makers price for a participant to sell or buy a security or derivatives related to the current mid market price.

00:57 To the current mid market price.

01:06 So, the bid is a price at which market maker is willing to buy the security while the offer is a price at which the market maker is willing to sell the security.

01:15 So, the bid offer is always relative to the current mid market price.

01:19 So, this option c is our correct answer.

01:23 So, now we will come to question 2.

01:28 Which of the following factor may lead to wandering bid or offer? so, we have four options here.

01:40 So, a widening bid offer occurs when the difference between a bid and offer price increases.

01:46 This can happen for a various varieties of reasons.

01:50 But some of the most common including stress market condition in the times creases where the market makers may less willing to take up the risk and directional markets where the market is looking for either to buy or sell but not both...

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