A market maker is a firm or individual that actively quotes both buy (bid) and sell (ask) prices for a particular financial instrument, along with the quantity available at those prices thereby providing liquidity to the market. Market makers stand ready to buy securities from sellers and sell securities to buyers at publicly quoted prices, facilitating smooth and continuous trading.

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Market makers primarily earn profits from the bid-ask spread, the difference between the prices at which they buy and sell securities. They are compensated for the risk of holding inventory that may fluctuate in value. To maintain market function, market makers continuously quote prices and hold an inventory of securities, regardless of market conditions.

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These market makers can be either brokerage firms or individual traders. They may trade for their own accounts (principal trades) or execute trades on behalf of others. Their role is critical in ensuring market liquidity and depth, allowing investors to buy or sell securities without causing significant price fluctuations.

In certain exchanges, designated market makers are given the exclusive responsibility of maintaining orderly markets for specific securities. They post bids and asks to ensure fair pricing and facilitate timely executions.

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