I’m in the education section (which is awesome!) but every now and then I stumble upon a typo. Re-reading with context, helps make sense of most of it.
However, I’m currently stumped :
On this page:
In the following section, is the word in Bold supposed to be SELLERS or BUYERS?:
In the stock market, the specialist is forced to fulfill the order of its clients. Now, let’s say the number of sellers suddenly exceeds the number of buyers.
The specialist, which is forced to fulfill the order of its clients, the sellers, in this case, is left with a bunch of stock that he cannot sell-off to the buyer side.
In order to prevent this from happening, the specialist will simply widen the spread or increase the transaction cost to prevent sellers from entering the market.
In other words, the specialists can manipulate the quotes it is offering to accommodate its needs.
If it’s Buyers (instead of sellers), then I think I understood.
But if it’s actually Sellers, then I’m completely lost.
In the scenario described in the first sentence (of the lesson you quoted), the specialist is being swamped by sellers. That is, the total volume of sell orders coming into his market exceeds the total volume of buy orders.
When this occurs, the specialist must step in and buy the excess for his own account.
He doesn’t want to do that.
To take that excess selling pressure off the market he manages, he widens the spread, in order to chase away some of the prospective SELLERS.
The specialist will widen the spread asymmetrically – meaning that he will lower his BID PRICE, without raising his ASKING PRICE. The result is that he is offering less to prospective sellers (to discourage some of them from selling), while not increasing the price to prospective buyers (in order not to discourage their buying).
Edited to make the following correction: change the word OFFER to BID PRICE. (See posts #3 and #4)
The specialist will widen the spread asymmetrically – meaning that he will lower his BID PRICE, without raising his ASKING PRICE.
Just so we’re clear, the specialist offers to sell to buyers at his (the specialist’s) ASK price, and the specialist offers to buy from sellers at his (the specialist’s) BID price. The ASK price is almost always higher than the BID price.
I will edit my post to change the word OFFER to BID PRICE.
You might find this article in Investopedia interesting –
Nope it’s correctly used and I believe @Clint has helped you and answered your query the best way anyone could. If you still have doubt, I’d suggest you keep reading and gather as much info about it from different sources.
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