Normal Market Size
What Is Normal Market Size?
Normal market size is a share classification structure in light of the number of shares outstanding. This classification is utilized in deciding the number of shares that a market maker can trade at the quoted price.
Understanding Normal Market Size
Normal market size (NMS) is the base number of securities for which a market maker is obliged to quote firm bid and ask prices. In a quote-driven market, market makers can't be expected to offer firm quotes up to a limitless size. Nonetheless, they must give adequate liquidity to investors to have the option to execute reasonable amounts of a security at a quoted price. This comprises the normal market size.
How Normal Market Size Works
Assuming Company X has a NMS of 1,000, a market maker must quote firm prices for volumes of that stock essentially that size. However, the market maker might go higher. For instance, they might quote 3,000 as a size offer and a 3,000 bid. In such a situation, a trader ought to have the option to buy or sell up to 3,000 shares of Company X by means of that market maker at the quoted prices.
The market maker's quote will show on a trader's screen as Company X at $1.05 - $1.10 (3,000 x 3,000). This means the market maker is prepared to sell up to 3,000 shares at $1.10 or buy up to 3,000 shares at $1.05.
If a trader has any desire to buy or sell in excess of 3,000 shares, this might be conceivable, yet the trader might need to pay more than the quoted price for the shares or acknowledge not exactly the quoted price to sell the shares. Breaking the exchange up into smaller trades might permit a trader to buy or sell the shares being referred to at the ideal price.
Special Considerations
Large companies will generally have high NMS figures on account of their high liquidity levels. For instance, a large company may frequently see a huge number of its shares traded in one day, which makes for a NMS during the huge number of shares. In these occurrences, a trader can be almost certain in the event that they buy 3,000 shares, the prices quoted are great, and the request won't move the market.
Small companies have lower NMS figures in light of the fact that their shares will generally be less liquid. Nonetheless, this doesn't be guaranteed to mean that a trader can't buy a number of shares larger than the NMS. In the event that the trade request is inside the market makers quoted size, a trader ought to have the option to deal.
Highlights
- Generally, the larger the company, the higher the NMS figure, as greater companies will more often than not have additional outstanding shares and a higher level of liquidity.
- To deal with that requirement for liquidity, they must basically offer set prices for volumes of stock at the NMS.
- Traders can in any case buy or sell shares over the NMS, however the price might be higher or lower than the quoted price.
- Market makers can't offer set bid and ask prices for an endless number of shares, yet they must offer an adequate number of shares to keep trade flowing and markets liquid.
- Normal Market Size (NMS) is the base number of shares in a specific company that can be traded at a specific price.
