Market Maker
A market maker is a financial institution or individual that actively buys and sells securities to provide liquidity and facilitate trading in financial markets. Market makers quote both buy (bid) and sell (ask) prices for a security, profiting from the spread between these prices. By constantly offering to buy and sell, market makers ensure that traders can enter or exit positions with minimal price slippage, helping maintain smooth market functioning.
Example
A market maker in the stock market quotes a bid price of $50 and an ask price of $50.05 for a stock, profiting from the $0.05 spread on each transaction.
Key points
• A financial institution or individual that buys and sells securities to provide liquidity and facilitate trading.
• Profits from the spread between the bid and ask prices.
• Helps ensure smooth market functioning by offering constant buy and sell quotes.
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