Market Maker

Definition

Market Maker in plain English

A market maker is a professional trader whose job is to always be willing to both buy AND sell, so that regular people can trade whenever they want without waiting for a matching partner to show up. They post two prices at once — a slightly lower one they'll buy at and a slightly higher one they'll sell at — and earn the small gap between them as their reward for standing ready. Think of a currency-exchange booth at an airport: it's always open to swap your dollars for euros or back, in either direction, pocketing a little on each swap. The "obligation" part means they've formally agreed to keep quoting even when things get chaotic, which helps keep trading smooth and orderly.

Learn these first

• Specialist
• Spoofing

Practice Market Maker

What risk arises because the value of that position can move before it is sold?

Related Market Microstructure terms

• Adverse Selection
• Fundamental Value
• Glosten–Milgrom Model
• Grossman–Stiglitz Paradox
• Informed Trader
• Kyle's Lambda (λ)
• Noise Trader
• Order Flow Toxicity
• Order Imbalance
• Price Discovery