Quote-Driven Market

A quote-driven market is a financial market in which prices are determined by the interaction of buyers and sellers who submit bids and offers. The market maker, or specialist, in a quote-driven market is responsible for maintaining an orderly market by providing liquidity and ensuring that there is always a bid and an offer for each security.

The quote-driven market is contrasted with the order-driven market, in which prices are determined by the orders that are submitted to the market. In an order-driven market, there is no central market maker, and buyers and sellers interact directly with each other.

The quote-driven market is the traditional model for financial markets, and it is still used for many securities, such as stocks and bonds. However, the order-driven market is becoming increasingly popular, as it is seen as being more efficient and transparent.

There are a number of advantages to the quote-driven market. First, it is a more transparent market, as all orders are publicly displayed. This makes it easier for investors to see what is happening in the market and to make informed decisions. Second, the quote-driven market is more liquid, as there is always a market maker who is willing to buy or sell a security. This makes it easier for investors to trade large blocks of securities without having to worry about the impact on the price.

However, there are also a number of disadvantages to the quote-driven market. First, it can be less efficient than the order-driven market, as it can take longer for orders to be executed. Second, the quote-driven market can be more susceptible to manipulation, as the market maker has the power to set the prices of securities.

Overall, the quote-driven market is a more traditional model for financial markets. It is more transparent and liquid, but it can be less efficient and more susceptible to manipulation. The order-driven market is a newer model for financial markets. It is more efficient and transparent, but it can be less liquid and more susceptible to volatility.