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A firm or individual that provides liquidity to a market by continuously quoting both buy and sell prices for a financial instrument, profiting from the bid-ask spread.
Market makers are essential to the functioning of financial markets. They stand ready to buy when you want to sell and sell when you want to buy, ensuring trades can be executed quickly. Major market makers include Citadel Securities, Virtu Financial, and GTS. They profit from the spread between bid and ask prices: buying at $49.98 and selling at $50.02 captures a $0.04 spread on each round trip. Market makers manage risk by rapidly hedging their positions and maintaining relatively neutral exposure. During high-volatility events, market makers may widen spreads or temporarily withdraw, which is why liquidity can dry up during market crises.