what is a market maker 
the term market maker refers to a firm or individual who actively quotes both sides of a market in a particular security by providing bids and offers known as asks along with the market size of each in fact they are obligated to engage in such trading activity 1market makers provide liquidity and depth to markets and profit from the difference in the bid ask spread they may also trade for their own accounts such trades are known as principal trades understanding market makersmany market makers are brokerage houses that provide trading services for investors they make markets in an effort to keep financial markets liquid a market maker can also be an individual trader who is commonly known as a local the vast majority of such market makers work on behalf of large institutions due to the lot sizes needed to facilitate the volume of purchases and sales each market maker displays buy and sell quotations two sided markets for a guaranteed number of shares once the market maker receives an order from a buyer they immediately sell their position of shares from their own inventory this allows them to complete the order a market maker must commit to continuously quoting prices at which it will buy or bid for and sell or ask for securities 2 market makers must also quote the volume in which they re willing to trade along with the frequency of time they will quote at the best bid and best offer prices market makers must stick to these parameters at all times no matter what their market outlook when markets become erratic or volatile market makers must remain disciplined in order to continue facilitating smooth transactions market makers must operate under a given exchange s bylaws which are approved by a country s securities regulator in the united states that regulator is the securities and exchange commission sec 3 the rights and responsibilities of market makers vary by exchange and by the type of financial instrument they trade such as equities or options making a market signals a willingness to buy and sell the securities of a certain set of companies to broker dealer firms that are members of an exchange 