Understanding NASDAQ market makers and liquidity
Every time you buy a US stock from India, an invisible network of firms ensures your order fills within milliseconds. These firms are market makers and form the backbone of NASDAQ liquidity. Understanding how they work helps you trade smarter, pay less in hidden costs, and avoid dangerous traps in illiquid stocks.
This guide breaks down the mechanics of market making, explains why spreads range from $0.01 to $1.00, and provides Indian investors with actionable thresholds for safer US stock trading.
How market makers on NASDAQ actually work
NASDAQ operates as a hybrid electronic dealer market. Unlike the NYSE, which assigns a single Designated Market Maker to each stock, NASDAQ allows multiple dealers to compete simultaneously for every listed security. Each NASDAQ stock must have at least two registered market makers, but popular names like Apple or Microsoft attract 30 or more competing firms at any given time.
As of late 2025, over 600 member firms are registered as market makers on NASDAQ, collectively supporting roughly 4,075 listed companies across three tiers. These firms must maintain continuous two-sided quotes — both a bid price and an ask price — with a minimum size of 100 shares. They must honour displayed quotes under the firm quote obligation and avoid locking or crossing the market.
A market maker that voluntarily withdraws from a security faces a 20-business-day ban before re-registering. This rule discourages firms from abandoning stocks during volatile periods when investors need liquidity most.
The industry has become extraordinarily concentrated and profitable. Citadel Securities earned $9.7 billion in net trading revenue in 2024, handling roughly 23% of all US cash equities volume and about 40% of retail order flow. Jane Street posted $20.5 billion in net trading revenue the same year, nearly doubling its 2023 figure. Virtu Financial reported $3.6 billion in total revenue for 2025. These firms earn money primarily through the bid-ask spread—buying at the bid and selling at the ask—capturing small differences across enormous volumes.
The bid-ask spread: your biggest hidden trading cost.
The bid ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accept. For mega-cap NASDAQ stocks like Apple or NVIDIA, this spread is at the regulatory minimum of $0.0, roughly 0.4 basis points on a $240 stock. For mid-cap stocks, spreads typically range from $0.02 to $0.10. Small caps face spreads of $0.04 to $0.20, and micro-cap stocks can see spreads exceeding $1.00 — sometimes more than 5% of the stock price.
This variation matters enormously for round-trip costs. Buying and selling $10,000 worth of Apple costs roughly $0.42 in spread, which is essentially nothing. The same $10,000 in a typical micro-cap stock with a 3% spread costs $300 before the stock moves a single cent in your favour.
Before 2001, US markets quoted prices in fractions. The minimum tick was $0.125, meaning even liquid stocks carried wide spreads. Decimalisation in 2001 reduced the minimum tick to one penny, dramatically cutting trading costs. The SEC adopted further reforms in September 2024, introducing a $0.005 minimum price increment for the most liquid stocks, with complete implementation expected by November 2026.
Spreads also widen dramatically during market stress. During the August 2024 flash crash triggered by Japan's surprise rate hike, large-cap spreads widened three to ten times their normal levels. Small-cap spreads expanded even further. The April 2025 tariff-driven selloff produced the largest global decline since COVID-19, with Treasury yields swinging wildly and equity spreads blowing out across all market cap tiers.
Why the importance of liquidity cannot be overstated
The importance of liquidity for investors extends far beyond the ability to buy and sell easily. Liquidity determines how much it actually costs to execute a trade, how quickly you can exit a position during a crisis, and how accurately market prices reflect fair value.
NASDAQ's on-exchange matched equity volume grew from roughly 1.89 billion shares per day in 2024 to approximately 2.68 billion shares per day in Q4 2025 — a 41% increase. For the full year 2025, NASDAQ matched approximately 625.7 billion shares across its exchange. This deep liquidity pool means mega-cap stocks absorb large orders with minimal price impact.
However, a landmark shift occurred in November 2024. For the first time in history, more than 50% of US equity volume is executed off-exchange—via dark pools and wholesale internalisers such as Citadel Securities. The breakdown is roughly 15% in dark pools and 35% through wholesale market makers. This means the lit exchange order book you see on your screen represents less than half of the actual trading activity.
Five key metrics capture the complete liquidity picture. Trading volume shows how many shares change hands daily. Turnover ratio measures how frequently a company's float trades. Market depth reveals the total quantity available at each price level. Price impact quantifies how much your trade moves the price. The bid-ask spread captures the direct cost of crossing from a buyer to a seller. Monitoring all five gives you a complete view rather than relying on volume alone.
High liquidity versus low liquidity: an 18,000× gap
The concentration of liquidity in mega-cap tech stocks is staggering. NVIDIA regularly exceeds 100 million shares per day. Tesla averages 63–84 million shares daily. Apple trades approximately 46 million shares, and Amazon roughly 50–65 million.
At the opposite extreme, thousands of NASDAQ-listed micro-caps trade under 10,000 shares per day—some average fewer than 8,000 shares daily, making them roughly 18,000 times less liquid than NVIDIA. For Indian investors used to BSE and NSE patterns, this extreme dispersion demands attention. The most liquid US stocks far exceed any Indian stock in depth, but the least liquid NASDAQ names can be far thinner than the most illiquid NSE small-caps.
Index inclusion acts as a liquidity supercatalyst. When Palantir joined the NASDAQ-100 in December 2024, it triggered an estimated $6.96 billion in forced buying, 1.35 times its average daily volume. Stocks joining the NASDAQ-100 have averaged 17% appreciation in the 12 months following inclusion. Higher institutional ownership drives a self-reinforcing cycle of more trading volume, more analyst coverage, and still more institutional buying. If you are comparing US stock trading platforms available to Indian investors, understanding these liquidity dynamics helps you evaluate which stocks are practical to trade from India.
Trading volume analysis: patterns and signals worth watching
Practical trading volume analysis goes beyond raw share counts. The intraday volume pattern follows a predictable U-shape. The first 30 minutes after the open account for 11–13% of total daily volume and have the highest volatility. Volume drops through the midday lull, then surges during the final hour as institutional traders rebalance and closing auction orders accumulate.
For Indian investors, this maps to evening and night hours. During winter, the US market opens at 8:00 PM IST and closes at 2:30 AM IST. During summer with daylight saving time, it begins at 7:00 PM IST and closes at 1:30 AM IST. The optimal trading window is the first two hours of the US session — peak liquidity during a reasonable Indian evening.
Volume-Weighted Average Price (VWAP) is the primary benchmark for execution quality. About 74% of hedge funds use VWAP algorithms. Buying below VWAP or selling above it indicates favourable execution. On-Balance Volume, created by Joe Granville in 1963, tracks cumulative volume flow and often shifts direction before price, making it a leading indicator. Bullish divergence, where price makes a lower low while OBV makes a higher low, can signal an upcoming reversal.
Volume around earnings follows a consistent pattern: roughly 50% above normal before the announcement, double or more on earnings day itself, and elevated for approximately one week afterwards. Small-cap stocks experience average post-earnings moves of 6.2% versus 2.8% for large caps.
Best execution practices for Indian investors
Your choice of order type should match the stock's liquidity profile. For highly liquid stocks with daily volume above 10 million shares, market orders work fine because spreads are tight and order books are deep. For moderately liquid stocks trading one to ten million shares daily, use limit orders set at or slightly above the current ask price when buying.
For illiquid stocks below 100,000 shares daily, always use limit orders. A market order on a thinly traded stock may fill at a price far from the displayed quote. During pre-market and after-hours sessions, limit orders are essential since spreads widen significantly. Knowing the difference between market orders and limit orders is fundamental to protecting your execution quality.
Your platform choice also matters. Indian fintech platforms like Vested Finance and INDmoney route through US broker-dealers such as DriveWealth under Payment for Order Flow arrangements. PFOF remains fully legal in the US as of February 2026, after the SEC under Chairman Paul Atkins formally withdrew the Gensler-era Order Competition Rule in June 2025. While PFOF does not necessarily produce worse fills, it means orders route to maximise broker revenue rather than minimise your costs. Interactive Brokers offers proprietary SmartRouting that scans multiple venues for the best price, with forex conversion costs of roughly 0.002% versus 0.5–1% on Indian fintech platforms.
Avoiding illiquid stocks: specific thresholds to enforce
When avoiding illiquid stocks, Indian investors should apply strict minimum filters before considering any US stock purchase. Require average daily volume above 200,000 shares, daily dollar volume above $10 million, and bid-ask spreads below 0.5%. Stocks trading below $5 per share fall into penny stock territory and carry outsized risks.
Never let your position exceed 1% of a stock's daily dollar volume. If a stock trades $5 million per day, cap your position at $50,000. Your total holding should be liquidatable within one to three days of normal trading without exceeding 10% of any single day's volume.
Watch for delisting risk. NASDAQ requires a minimum bid price of $1.00 for continued listing. If the bid falls below that threshold for 30 consecutive business days, the company receives notice and has 180 days to cure the deficiency. NASDAQ tightened these rules in 2024 and 2025, accelerating delisting after repeated failures. When delisting approaches, institutional investors exit, market makers reduce quoting, spreads widen, and volume collapses. Stick exclusively to NASDAQ and NYSE-listed securities and avoid OTC stocks entirely.
The Indian investor's time zone gap adds another layer of risk with illiquid names. If adverse news breaks during the US morning session, your stock may drop sharply before you can react from India. Currency conversion fees of 0.5–1% on fintech platforms compound spread costs further. Starting with NASDAQ-100 or S&P 500 constituents eliminates liquidity risk. These are stocks where dozens of market makers on NASDAQ compete aggressively to offer the tightest possible prices.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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Table of Contents
Every time you buy a US stock from India, an invisible network of firms ensures your order fills within milliseconds. These firms are market makers and form the backbone of NASDAQ liquidity. Understanding how they work helps you trade smarter, pay less in hidden costs, and avoid dangerous traps in illiquid stocks.
This guide breaks down the mechanics of market making, explains why spreads range from $0.01 to $1.00, and provides Indian investors with actionable thresholds for safer US stock trading.
How market makers on NASDAQ actually work
NASDAQ operates as a hybrid electronic dealer market. Unlike the NYSE, which assigns a single Designated Market Maker to each stock, NASDAQ allows multiple dealers to compete simultaneously for every listed security. Each NASDAQ stock must have at least two registered market makers, but popular names like Apple or Microsoft attract 30 or more competing firms at any given time.
As of late 2025, over 600 member firms are registered as market makers on NASDAQ, collectively supporting roughly 4,075 listed companies across three tiers. These firms must maintain continuous two-sided quotes — both a bid price and an ask price — with a minimum size of 100 shares. They must honour displayed quotes under the firm quote obligation and avoid locking or crossing the market.
A market maker that voluntarily withdraws from a security faces a 20-business-day ban before re-registering. This rule discourages firms from abandoning stocks during volatile periods when investors need liquidity most.
The industry has become extraordinarily concentrated and profitable. Citadel Securities earned $9.7 billion in net trading revenue in 2024, handling roughly 23% of all US cash equities volume and about 40% of retail order flow. Jane Street posted $20.5 billion in net trading revenue the same year, nearly doubling its 2023 figure. Virtu Financial reported $3.6 billion in total revenue for 2025. These firms earn money primarily through the bid-ask spread—buying at the bid and selling at the ask—capturing small differences across enormous volumes.
The bid-ask spread: your biggest hidden trading cost.
The bid ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accept. For mega-cap NASDAQ stocks like Apple or NVIDIA, this spread is at the regulatory minimum of $0.0, roughly 0.4 basis points on a $240 stock. For mid-cap stocks, spreads typically range from $0.02 to $0.10. Small caps face spreads of $0.04 to $0.20, and micro-cap stocks can see spreads exceeding $1.00 — sometimes more than 5% of the stock price.
This variation matters enormously for round-trip costs. Buying and selling $10,000 worth of Apple costs roughly $0.42 in spread, which is essentially nothing. The same $10,000 in a typical micro-cap stock with a 3% spread costs $300 before the stock moves a single cent in your favour.
Before 2001, US markets quoted prices in fractions. The minimum tick was $0.125, meaning even liquid stocks carried wide spreads. Decimalisation in 2001 reduced the minimum tick to one penny, dramatically cutting trading costs. The SEC adopted further reforms in September 2024, introducing a $0.005 minimum price increment for the most liquid stocks, with complete implementation expected by November 2026.
Spreads also widen dramatically during market stress. During the August 2024 flash crash triggered by Japan's surprise rate hike, large-cap spreads widened three to ten times their normal levels. Small-cap spreads expanded even further. The April 2025 tariff-driven selloff produced the largest global decline since COVID-19, with Treasury yields swinging wildly and equity spreads blowing out across all market cap tiers.
Why the importance of liquidity cannot be overstated
The importance of liquidity for investors extends far beyond the ability to buy and sell easily. Liquidity determines how much it actually costs to execute a trade, how quickly you can exit a position during a crisis, and how accurately market prices reflect fair value.
NASDAQ's on-exchange matched equity volume grew from roughly 1.89 billion shares per day in 2024 to approximately 2.68 billion shares per day in Q4 2025 — a 41% increase. For the full year 2025, NASDAQ matched approximately 625.7 billion shares across its exchange. This deep liquidity pool means mega-cap stocks absorb large orders with minimal price impact.
However, a landmark shift occurred in November 2024. For the first time in history, more than 50% of US equity volume is executed off-exchange—via dark pools and wholesale internalisers such as Citadel Securities. The breakdown is roughly 15% in dark pools and 35% through wholesale market makers. This means the lit exchange order book you see on your screen represents less than half of the actual trading activity.
Five key metrics capture the complete liquidity picture. Trading volume shows how many shares change hands daily. Turnover ratio measures how frequently a company's float trades. Market depth reveals the total quantity available at each price level. Price impact quantifies how much your trade moves the price. The bid-ask spread captures the direct cost of crossing from a buyer to a seller. Monitoring all five gives you a complete view rather than relying on volume alone.
High liquidity versus low liquidity: an 18,000× gap
The concentration of liquidity in mega-cap tech stocks is staggering. NVIDIA regularly exceeds 100 million shares per day. Tesla averages 63–84 million shares daily. Apple trades approximately 46 million shares, and Amazon roughly 50–65 million.
At the opposite extreme, thousands of NASDAQ-listed micro-caps trade under 10,000 shares per day—some average fewer than 8,000 shares daily, making them roughly 18,000 times less liquid than NVIDIA. For Indian investors used to BSE and NSE patterns, this extreme dispersion demands attention. The most liquid US stocks far exceed any Indian stock in depth, but the least liquid NASDAQ names can be far thinner than the most illiquid NSE small-caps.
Index inclusion acts as a liquidity supercatalyst. When Palantir joined the NASDAQ-100 in December 2024, it triggered an estimated $6.96 billion in forced buying, 1.35 times its average daily volume. Stocks joining the NASDAQ-100 have averaged 17% appreciation in the 12 months following inclusion. Higher institutional ownership drives a self-reinforcing cycle of more trading volume, more analyst coverage, and still more institutional buying. If you are comparing US stock trading platforms available to Indian investors, understanding these liquidity dynamics helps you evaluate which stocks are practical to trade from India.
Trading volume analysis: patterns and signals worth watching
Practical trading volume analysis goes beyond raw share counts. The intraday volume pattern follows a predictable U-shape. The first 30 minutes after the open account for 11–13% of total daily volume and have the highest volatility. Volume drops through the midday lull, then surges during the final hour as institutional traders rebalance and closing auction orders accumulate.
For Indian investors, this maps to evening and night hours. During winter, the US market opens at 8:00 PM IST and closes at 2:30 AM IST. During summer with daylight saving time, it begins at 7:00 PM IST and closes at 1:30 AM IST. The optimal trading window is the first two hours of the US session — peak liquidity during a reasonable Indian evening.
Volume-Weighted Average Price (VWAP) is the primary benchmark for execution quality. About 74% of hedge funds use VWAP algorithms. Buying below VWAP or selling above it indicates favourable execution. On-Balance Volume, created by Joe Granville in 1963, tracks cumulative volume flow and often shifts direction before price, making it a leading indicator. Bullish divergence, where price makes a lower low while OBV makes a higher low, can signal an upcoming reversal.
Volume around earnings follows a consistent pattern: roughly 50% above normal before the announcement, double or more on earnings day itself, and elevated for approximately one week afterwards. Small-cap stocks experience average post-earnings moves of 6.2% versus 2.8% for large caps.
Best execution practices for Indian investors
Your choice of order type should match the stock's liquidity profile. For highly liquid stocks with daily volume above 10 million shares, market orders work fine because spreads are tight and order books are deep. For moderately liquid stocks trading one to ten million shares daily, use limit orders set at or slightly above the current ask price when buying.
For illiquid stocks below 100,000 shares daily, always use limit orders. A market order on a thinly traded stock may fill at a price far from the displayed quote. During pre-market and after-hours sessions, limit orders are essential since spreads widen significantly. Knowing the difference between market orders and limit orders is fundamental to protecting your execution quality.
Your platform choice also matters. Indian fintech platforms like Vested Finance and INDmoney route through US broker-dealers such as DriveWealth under Payment for Order Flow arrangements. PFOF remains fully legal in the US as of February 2026, after the SEC under Chairman Paul Atkins formally withdrew the Gensler-era Order Competition Rule in June 2025. While PFOF does not necessarily produce worse fills, it means orders route to maximise broker revenue rather than minimise your costs. Interactive Brokers offers proprietary SmartRouting that scans multiple venues for the best price, with forex conversion costs of roughly 0.002% versus 0.5–1% on Indian fintech platforms.
Avoiding illiquid stocks: specific thresholds to enforce
When avoiding illiquid stocks, Indian investors should apply strict minimum filters before considering any US stock purchase. Require average daily volume above 200,000 shares, daily dollar volume above $10 million, and bid-ask spreads below 0.5%. Stocks trading below $5 per share fall into penny stock territory and carry outsized risks.
Never let your position exceed 1% of a stock's daily dollar volume. If a stock trades $5 million per day, cap your position at $50,000. Your total holding should be liquidatable within one to three days of normal trading without exceeding 10% of any single day's volume.
Watch for delisting risk. NASDAQ requires a minimum bid price of $1.00 for continued listing. If the bid falls below that threshold for 30 consecutive business days, the company receives notice and has 180 days to cure the deficiency. NASDAQ tightened these rules in 2024 and 2025, accelerating delisting after repeated failures. When delisting approaches, institutional investors exit, market makers reduce quoting, spreads widen, and volume collapses. Stick exclusively to NASDAQ and NYSE-listed securities and avoid OTC stocks entirely.
The Indian investor's time zone gap adds another layer of risk with illiquid names. If adverse news breaks during the US morning session, your stock may drop sharply before you can react from India. Currency conversion fees of 0.5–1% on fintech platforms compound spread costs further. Starting with NASDAQ-100 or S&P 500 constituents eliminates liquidity risk. These are stocks where dozens of market makers on NASDAQ compete aggressively to offer the tightest possible prices.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs
