Terms
Arbitrage- Attempting to profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. The ideal version is riskless arbitrage.
Bid- The highest price any buyer is willing to pay for a given security at a given time; also called bid price. Quoted bid is a maximum price that a market maker will pay for a security.
Ask-The lowest price that any investor or dealer has declared that he/she will sell a given security or commodity for. For over-the-counter stocks, the ask is the best quoted price at which a Market Maker is willing to sell a stock.
Market Maker- A brokerage or bank that maintains a firm bid and ask price in a given security by standing ready, willing, and able to buy or sell at publicly quoted prices (called making a market). These firms display bid and offer prices for specific numbers of specific securities, and if these prices are met, they will immediately buy for or sell from their own accounts. Market makers are very important for maintaining liquidity and efficiency for the particular securities that they make markets in.
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