Market Maker
A market maker is a firm that quotes both buy and sell prices for a security, providing liquidity.
Market makers profit from the bid-ask spread — they buy at the bid and sell at the ask, pocketing the difference. In return, they commit to provide continuous two-way prices, ensuring investors can always find a counterparty.
On electronic order-book markets like the London Stock Exchange's SETS system, market makers compete with each other and with algorithmic traders to provide the tightest spreads. On smaller or less liquid stocks, a single designated market maker may provide the only consistent liquidity.
During extreme market stress, market makers may widen spreads dramatically or step back entirely — liquidity is never guaranteed.
Further Reading
Peter Lynch on how everyday investors can spot winners before the professionals do.
Check Price →A structured logbook for tracking positions, theses and outcomes over time.
Check Price →Morgan Housel's short lessons on behaviour, luck and long-term wealth.
Check Price →Related terms
Recommended Reading & Tools
As an Amazon Associate we earn from qualifying purchases. Links below are affiliate links.
Benjamin Graham's classic on value investing — the book Warren Buffett calls the best ever written on the subject.
Check Price →A structured logbook for tracking positions, theses and outcomes over time.
Check Price →JL Collins' plain-English guide to index investing and financial independence.
Check Price →