generally mitigate this. What this means is that the likelihood of an ECN becoming insolvent is much lower than that of a market maker. ECNs typically give you the prices they are dealt from their liquidity providers, with the exact same spreads, but then charge a commission for every round turn trade. To understand why you should be amazed, take a look of what's needed when an order is placed with a broker. Using our previous example, the market maker may purchase your shares of IBM from you for 100 each (the ask price) and then offer to sell them to a buyer at 100.05 (the bid price). Trading with a market maker insulates your from that to some degree, but this can also be used to hide things from you. Understand this and you will rule the forex market. By taking you through those topics in a step-by-step way, my hope is that by the time you've finished reading it, you'll have a better understanding of some of the forces at work in the capital markets. What if he buys your shares of common stock in IBM then IBM's stock price begins to fall before a willing buyer has purchased the shares? To learn more about how Wall Street works, including some of the things that drive stock prices to the extremes of overvaluation and undervaluation, read Introduction to Wall Street.
If you're posting orders on an exchange and the market moves too quickly, you'll get put into a position when the market is going against you, which you won't be able to get out of without losing money. Shackled with those types of minimums, you had better be well Capitalized (with a capital C). Want to trade with me live every day? An ECN does not have to worry about this, as it provides only a service for which it charges a commission. To prevent this, the market maker maintains a spread on each stock he covers. Investors and traders prefer to buy and sell easily. Who is your client though? Minimum Deposits, there are retail market makers out there today that allow traders to begin with 1 in their accounts. It's very unlikely you are always going to find someone who is interested in buying or selling the exact number of shares of the same company at the exact same time. Financial markets need to operate smoothly.
Without market makers, there would likely be fewer transactions and the overall markets would slow down. . Transaction Costs, whether they call it a spread or a commission is really irrelevant at the end of the day - no matter what, you have to pay to play.