Market Maker

A market maker is an individual or firm which connects buyers and sellers of an asset – hence making a market. The market maker will usually hold the asset and then find a seller, and assumes some of the risk of the asset devaluing. To compensate for this risk, they will offer slightly different prices and spreads and make tiny profits on thousands of trades.

For example, a market maker may buy US treasuries from one client at 98.5 and sell them to another for 98.55, thereby making 0.05 per unit. This can quickly add up when trading vast quantities.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Accounts Receivable Turnover Ratio
• Marginal Cost Formula
• Nash Equilibrium