Liquidity and the market maker – inseparable twins

LIQUIDITY is a multi-dimensional concept which generally refers to the ability to execute large transactions with limited price impact and tends to be associated with low transaction costs and immediacy in execution.

In some markets such as foreign exchange, fixed income and derivatives where matching supply and demand for a given instrument becomes challenging, market makers, such as banks and trading firms are essential in providing liquidity and facilitating transactions by stepping in as counterparties to such transactions.