Market Maker

A market maker keeps trading running smoothly by always being willing to buy and sell a particular security. It posts a bid price at which it will buy and an ask price at which it will sell, and it profits mainly from the small difference between them, the bid-ask spread.

Without market makers, an investor wanting to sell might have to wait until another investor happened to want to buy the same stock at the same time. Market makers fill that gap, which makes it easier and faster to trade, especially in less popular stocks.

Market makers take on risk, because prices can move against the inventory they hold. They manage that risk with fast computer systems and hedging. On the NYSE, designated market makers have special duties to keep trading in assigned stocks orderly. On Nasdaq, multiple competing market makers quote the same stocks.

Many retail orders in the US are executed by large wholesale market makers rather than directly on an exchange. Regulators require brokers to seek the best available execution for customer orders.