In stock-market trading, what does a market maker do?

In stock-market trading, a market maker provides liquidity by standing ready to buy or sell securities.

Market makers continuously quote prices at which they are willing to purchase shares and prices at which they are willing to sell them. Their displayed buying price is the bid, while their selling price is the ask. By maintaining these quotes, they help investors trade without waiting for a perfectly matched opposite order to appear.

A market maker generally earns compensation through the spread between bid and ask prices, along with other permitted trading revenues. The role is not the same as setting a stock’s value: prices change as buyers and sellers submit orders and as new information reaches the market.

Market makers can operate on exchanges or electronic trading venues. They must follow market rules, capital requirements, and obligations designed to support orderly trading. They also face risk if prices move sharply while they hold inventory.