What is a market maker?

Market makers look at the price of the underlying assets to determine the market related price of Exchange-Traded Funds (ETFs). Let us assume that the market maker is tracking share prices. The price of all the shares in that index will be considered when determining the correct price of the EFT.

Market makers place a massive buy order at approximately 0.5% below the underlying price and a sell order 0.5% above the underlying price. In other words, the market maker creates a supply and demand. This ensures that you always pay a market related price for the ETFs that you buy. The one percent difference between the buy and the sell price is called the spread.

The market maker is only active between 09:30 and 16:30. If you trade outside this period, you will be buying from other traders. The price you pay in the first and last half hour of the day will vary depending on the offer and bid prices. As such, the prices might not reflect the true underlying price of the ETF.