Market Maker
Market Maker#
Definition#
A market maker is a financial institution or professional trader that provides liquidity to a market by continuously quoting both a buying price (bid) and a selling price (ask) on an asset. The market maker earns money on the difference between those two prices (the spread). The leading market makers are Citadel Securities, Virtu Financial, and Jane Street. Without them, it would often be impossible to find a buyer or a seller at the moment you need one.
Example: in the Bitcoin market, a market maker might offer to buy at EUR 69,990 and sell at EUR 70,010. The EUR 20 spread is their compensation for providing liquidity. The more liquid an asset, the tighter the spread.
Key Takeaway
The market maker is an essential participant in the markets. They take on the risk of holding positions so that you can buy and sell instantly. Without market makers, markets would be far less liquid and spreads far wider.
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