Order driven market
Sharemark has a number of unique features. One of these is that it is an order driven market on which shares are traded at a single price, without bid/offer spreads common to the larger, quote driven markets.
Shares in large established companies change hands frequently whereas smaller companies tend to be less liquid which can lead to wide bid/offer spreads on a quote driven market. Sharemark is designed to combat this.
If you bought shares in a company on a quote driven market today, the price you pay will probably be more than the price you could immediately sell them for. In the case of a large company the difference could be small.
The difference occurs because in each quote driven trade there is a ‘market maker’ that purchases shares and then sells them on. Their payment for this comes from selling the shares on at a profit. When you buy shares, the extra you pay over the day’s selling price is the market maker’s fee.
Where a market maker is involved in an illiquid stock, they may charge a higher fee meaning a bigger difference between the buying and selling price which in some cases can be significant. Investors would then need to see a large increase in the share price before they stand to make a profit from their investment.
There are no market makers operating on Sharemark where all trades are transacted at a single price. Even if the stock is infrequently traded, investors aren’t affected by wide bid/offer spreads.
To find out how prices are set on Sharemark, please click here.
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