What are 'market makers'? - MoneyWeek investment tutorial

[MoneyWeekVideos]

ConfusedLad27 - yes in liquid shares an order book can electronically match buy and sell orders provided the prices agree. Market makers are increasingly used in less liquid markets or markets where there is no central exchange (e.g. the bonds market).

[ConfusedLad27]

I am a little confused :-) In the above example, what if I I wanted to buy 100 shares at £1.05 and there is someone else who owns the same shares who wants to sell at £1.05. Can the stock exchange not just match these two without using the market makers bid/offer prices?

[rodctenis]

@MarketDepth Maybe we should discuss this in the derivates video. Let me give you more information: the way to package debt is very particular. Basically, the loans are sliced in three: the best part (the first payments, less likely to default) the medium and the low. All of them are pooled with other similar pieces of debt to create a single package. When the crisis of 2008 started, trying to get a valuation of these assets was almost impossible.

[rodctenis]

@MarketDepth Are assets because the "packaged debt" is giving access to the cashflow generated by the "packaged debt". Securitization is the name of the packaging industry in this case. Banks give the loan, then they package several loans, they sell the package and get resources to lend money again. The buyer, get the cashflow at a discount from present value taking the risk of the underlying assets of these derivatives.

[johnny6ryefield]

Best finance tutorial videos, and best channel on YouTube. My first stop whenever I want to learn. Please keep on posting Tim