market maker

Market Maker

A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.

Notes:

The Nasdaq is the prime example of an operation of market makers. There are over 500 member firms that act as Nasdaq market makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for an asset.

See also: Ask, Bid, Broker - Dealer, ECN, Ghosting, Market Maker Spread, Nasdaq, Quote Driven, SOES, Specialist

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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

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.