What Is Market Maker?
Market makers post continuous bid and ask quotes on assets, profiting from the spread between them. They take the other side of customer trades, which means they're long when customers sell and short when customers buy — managing inventory risk constantly.
Designated market makers on stock exchanges have obligations to provide liquidity even in stressed conditions. In return, they get rebates, preferential order flow, and information about resting orders. On crypto exchanges and forex, market-making is open to anyone running the right algorithms.
When you place a market order as a retail trader, a market maker is usually who fills it. Their edge is technological speed (microseconds matter) and inventory management. The spread they earn — sometimes just fractions of a penny — is their profit on each fill.
Related terms
- Order Book — Real-time list of all open buy and sell orders for an asset, by price.
- Bid-Ask Spread — The gap between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask).
- Liquidity — The ease with which an asset can be bought or sold without significantly affecting its price.
- Market Order — An order to buy or sell immediately at the best available price — guarantees execution, not price.