Hello everyone, I dont understand terms of " take the market" and “make the market”.
And Can you give me an example about Stop-loss oder (Stop sell or Stop buy).
Can you explain for me please? Thank you so much!
When we talk about taking the market and making the market, we are defining the “market” as the highest available bid price and the lowest available ask price. In over the counter markets (where dealers are the main counterparty to each trade), dealers buy at the bid price and sell at the ask price (the best posted dealer bid and ask are the market so to speak). So when we say someone is taking the market that means they are buying at the ask and selling at the bid, they are taking liquidity from the market and making a price concession to do so. On the other hand, when an order makes the market they are trying to do something similar to what dealers do and buy at the bid and sell at the ask, and they try to accomplish this with a limit order. By accepting that their order might not get filled immediately, when we make the market we can try to get a better entry price on our trade.
Stop loss orders are exactly what they sound like, they try to impose a cap on the potential losses of an outstanding position. Say you own 100 shares of a stock at 50. You might put a stop loss sell order in at 40 to try and limit the amount of loss you would incur on that position, if the stock price dropped below 40 a market order to sell would be placed (note however this is no guarantee your order will execute at 40, its a market order). For a stop buy order, say you sold 100 shares of a stock trading at 30 short and you want to limit your losses on the position. You could place a stop buy order to buy back the 100 shares if the stock price reaches 40, although again there is no guarantee you will get this price with a market order.
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