How Does the Presence of Market Makers Enhance Liquidity in Standardized Options? ▴ Learn

How Does the Presence of Market Makers Enhance Liquidity in Standardized Options?

Market makers are professionals who continuously quote both bid and ask prices for an option contract. By standing ready to buy or sell, they narrow the bid-ask spread, which reduces the cost of trading.

This continuous quoting provides depth and immediacy, ensuring that traders can enter or exit positions quickly, thereby significantly enhancing market liquidity.

In Which Derivatives Markets (E.g. Futures, Swaps, Options) Is the Cost of Immediacy Generally Highest?

How Is the ‘Effective Spread’ Calculated, and Why Is It a Better Measure of the Cost of Immediacy than the Quoted Spread?

What Is the Role of a ‘Market Maker’ in Providing Liquidity on an RFQ Platform?

What Is the Concept of ‘Tick Size’ and How Does It Limit Spread Narrowing?