Market Maker

A firm that continuously quotes buy and sell prices for a security, providing market liquidity.

What Is a Market Maker?

A market maker is a firm that stands ready to buy and sell a particular stock at publicly quoted prices at all times during trading hours. They profit from the bid-ask spread and play a crucial role in keeping markets liquid and orderly.

How Market Makers Work

Market makers maintain an inventory of shares and continuously quote both a bid (buy) price and an ask (sell) price. When you place a market order, you're likely trading with a market maker. They manage risk by quickly adjusting their quotes based on order flow and market conditions.

Market Makers During Earnings

Around earnings announcements, market makers face increased risk because the stock could gap significantly. They respond by widening the bid-ask spread, reducing the size of their quotes, and sometimes stepping back from the market entirely in the seconds before a report is released. This is why spreads widen and liquidity thins during earnings.