|Overview: Market Maker|
|Definition||A market participant that continuously offers to both buy and sell a particular security.|
|Value||Adds liquidity to a market|
|Related Techniques||Financial Intermediation|
What is a Market Maker?
John Spacey, updated on February 27, 2017
A market maker is a company that continuously quotes both a buy and sell price for a particular security on a market. This is considered an added value service because it ensures market liquidity. In other words, it allows market orders for a security to fill quickly. A market maker may be designated by an exchange or may act as a market maker independently by frequently buying and selling a particular security. Market makers earn a profit on the spread, or the different between their buy and sell bids. However, it's a difficult business that requires high speed execution and sufficient risk management practices.
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