In the intricate world of stock trading, Market Makers play a pivotal role in ensuring seamless transactions and liquidity. As key players on the NASDAQ Stock Market, these firms either purchase for or sell from their own inventory or seek the opposite side of a trade until execution, often within seconds. Competing for customer order flow, Market Makers display buy and sell quotations for a guaranteed number of shares. With over 500 firms acting as NASDAQ Market Makers, they are crucial to maintaining the market's fluidity and efficiency.
Specialists, distinct from Market Makers, are securities firms holding seats on national securities exchanges. These entities are tasked with maintaining orderly markets in the securities for which they have exclusive franchises. Both Market Makers and Specialists are integral to the functioning of financial markets, though they operate in different capacities.
Regulation T of the Federal Reserve Board governs the extension of credit by broker-dealers, such as Wells Fargo Investments, LLC, to their customers. This regulation explicitly prohibits freeriding, a practice where a customer buys a security at a low price and sells it at a higher price on the same trading day, using the proceeds to pay for the original purchase. Freeriding violates Regulation T, ensuring that customers cannot exploit market timing without actual capital.
Wells Fargo Investments, LLC has clarified that it will not restrict trading on fast-moving securities. However, customers are advised of the significant additional risks associated with trading in a fast market. This stance highlights the balance between facilitating active trading and ensuring that investors are aware of potential volatility and risks.
A stop limit order is another crucial tool for traders, offering two major differences from a stop order. When the stop price is reached, a stop limit order becomes a limit order, executing at the stop price or better. However, it will not execute if the stop price is not reached. This mechanism provides traders with greater control over their transactions, allowing them to set precise points for buying or selling securities.
The NASDAQ Stock Market's structure is characterized by competing Market Makers who are NASD member firms. These firms buy and sell NASDAQ securities at prices displayed in NASDAQ for their own accounts. Their display of buy and sell quotations ensures a guaranteed number of shares, contributing to market stability and liquidity.