InvestorQ : Is it really true that traders reduce the risk in the market?
Anamika Sodhani made post

Is it really true that traders reduce the risk in the market?

Answer
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Rashi Mehra answered.
2 years ago


This benefit may not be obvious to you unless you actually get down and trade in the market. Imagine that you are trying to sell your shares but the seller is nearly four rupees away from your buying price. By adhering to the buyer’s request you will incur a loss of Rs.4. This problem can be overcome if the bid-ask spreads are finer and narrower. That is a job that traders do to perfection. If they find the spreads too wide, then traders participate in intermediate spreads inducing buyers and sellers to settle at a profitable level. In the process, the trader also makes a spread but also reduces the overall risk in the market by tightening the bid-ask spreads on the stock.