What is the primary function of market makers on Eurex?

What is the primary function of market makers on Eurex?

• A. To execute trades for retail investors
• B. To create new derivatives
• C. To provide liquidity by quoting buy and sell prices
• D. To manage risks for other participants

Answer: (C)

Market makers play a crucial role in the liquidity and efficiency of financial markets, including those on Eurex. Their primary function is to provide liquidity by continuously quoting buy and sell prices for various financial instruments, primarily derivatives. This means that market makers are always ready to buy or sell a particular asset, which facilitates trading for other market participants. By quoting both a bid price (the price at which they are willing to buy) and an ask price (the price at which they are willing to sell), they help ensure that there is always a market for the securities. This continuous presence in the market reduces the bid-ask spread, making it easier for other traders to enter and exit positions without significant price movement that could occur in less liquid markets. The other choices reflect functions that are not the primary roles of market makers. Executing trades for retail investors is typically the role of brokerage firms rather than market makers themselves. Creating new derivatives involves product development and is usually the function of exchanges or financial structurers, and while managing risks is a concern for all market participants, it is not the central role of market makers, who focus primarily on maintaining liquidity in the market.

Market makers play a crucial role in the liquidity and efficiency of financial markets, including those on Eurex. Their primary function is to provide liquidity by continuously quoting buy and sell prices for various financial instruments, primarily derivatives. This means that market makers are always ready to buy or sell a particular asset, which facilitates trading for other market participants.

By quoting both a bid price (the price at which they are willing to buy) and an ask price (the price at which they are willing to sell), they help ensure that there is always a market for the securities. This continuous presence in the market reduces the bid-ask spread, making it easier for other traders to enter and exit positions without significant price movement that could occur in less liquid markets.

The other choices reflect functions that are not the primary roles of market makers. Executing trades for retail investors is typically the role of brokerage firms rather than market makers themselves. Creating new derivatives involves product development and is usually the function of exchanges or financial structurers, and while managing risks is a concern for all market participants, it is not the central role of market makers, who focus primarily on maintaining liquidity in the market.