Quote Driven Markets (Dealer Markets)

Schweser book 5, p117 “Traditionally, dealers provided immediacy or bridge liquidity in return for earning the bid-ask spread.” Prof Note: “Providing immediacy (ie bridge liquidity) means the dealer fills orders between the lowest ask and highest bid limit orders. By doing so the dealer helps keep the market running smoothly.” This seems so basic, but I am just not getting what they are saying above. Help an idiot out please.

All he is saying is that dealer provides liquidity to the market. Bridge liquidity is just that the liquidity he provides by filling the orders at a price which is in between the bid and ask- sort of at the midpoint-so bridge.

Is he saying the dealers are selling at below market ask and buying at above market bid? If so, why would the dealer accept a smaller spread just to keep things moving?

Because doing so ( making a market) provides them with volume of transaction * spread which is income for them instead of having 1 transaction at a high spread they are willing to make 10 transactions at a reduced spread - the reduced spread is an incentive for buyers and sellers that is how I see this thing

Okay. Makes sense I guess.

florinpop is correct. That is exactly what providing liquidity means.