Market Maker

Market maker

Used in the context of general equities. One who maintains firm bid and offer prices in a given security by standing ready to buy or sell round lots at publicly quoted prices. See: Agent, dealer, specialist.

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Market Maker

A dealer available to trade a stated security on its own account at any time at the quoted price. The job of a dealer is to be a market maker in order to promote liquidity for a security. When a broker-dealer makes a market, it trades from its own inventory, which is easier and less expensive for an investor than looking for other brokerages willing to trade. Many exchanges designate a market maker for each of its listed securities to promote ease of trade.

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market maker

1. One (as a person or firm) that, on a continuous basis, buys and sells a security for one's own account. Market makers usually try to profit from a rapid turnover in security positions rather than from holding those positions in anticipation of gradual price movements. Specialists on the organized exchanges and dealers in the over-the-counter market are market makers. See also make a market.

2. A dealer in options on the floor of an options exchange who makes a market in one or more options. The Chicago Board Options Exchange uses market makers.

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Market maker. A broker-dealer who is prepared to buy or sell a specific security -- such as a bond or at least one round lot of a stock -- at a publicly quoted price, is called a market maker in that security.

Other brokers buy or sell specific securities through market makers, who may maintain inventories of those securities.

There is often more than one market maker in a particular security, and they bid against each other, helping to keep the marketplace liquid.

The Nasdaq Stock Market and the corporate and municipal bond markets are market maker markets. In contrast, on the floor of the New York Stock Exchange (NYSE) there's a single specialist to handle transactions in each security.

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Market Maker

What Does Market Maker Mean?

A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security to facilitate trading in that security. Each market maker competes for investor order flow by displaying buy (bid) and sell (ask) quotations for a specific number of shares (size). Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in seconds. Market makers buy and sell for their own accounts to make a profit.

Investopedia explains Market Maker

The Nasdaq is the prime example of an operation that uses market makers. There are over 500 member firms that act as Nasdaq market makers. These broker-dealer firms add liquidity and keep the financial markets running efficiently because they are willing to quote both bid and ask prices for an asset.

Related Terms:
• Ask
• Bid
• Broker-Dealer
• Electronic Communication Network—ECN
• Over the Counter