Market Maker

The term market maker refers to a firm or individual who actively quotes two-sided markets in a particular security by providing bids and offers (known as asks) along with the market size of each. Market makers provide liquidity and depth to markets and profit from the difference in the bid-ask spread. They may also make trades for their own accounts, which are known as principal trades.

Key Takeaways:

• Stockbrokers manage A market maker is an individual participant or member firm of an exchange that buys and sells securities for its own account.
• Full-service brokers, Market makers provide the market with liquidity and depth while profiting from the difference in the bid-ask spread.
• Market makers are compensated for the risk of holding assets because a security's value may decline between its purchase and sale to another buyer.
• While brokers compete against one another, specialists post bids and asks and ensure they are reported accurately.