What is: Quote Driven Market

What is: Quote Driven Market

A quote driven market is a type of financial market where prices are determined by quotes provided by market makers or dealers. In this market, buyers and sellers can place orders based on the quotes provided, rather than relying on an exchange to match orders.

In a quote driven market, market makers or dealers provide quotes for buying and selling securities. These quotes include the price at which the market maker is willing to buy or sell a security, as well as the quantity they are willing to trade at that price.

Market makers play a crucial role in quote driven markets by providing liquidity and ensuring that there is a continuous flow of buying and selling activity. They also help to narrow the spread between bid and ask prices, making it easier for traders to execute their orders at a fair price.

One of the key advantages of a quote driven market is that it allows for greater flexibility in pricing. Market makers can adjust their quotes in real-time based on market conditions, news events, or other factors that may impact the price of a security.

However, quote driven markets can also be more susceptible to manipulation or price distortions, as market makers have the ability to influence prices through their quotes. Traders should be aware of this risk and take it into consideration when trading in a quote driven market.

Overall, quote driven markets offer a dynamic and efficient trading environment for buyers and sellers to interact and execute trades. By understanding how quotes are generated and how market makers operate, traders can make more informed decisions and navigate the market with confidence.