What is a market maker?

A market maker is a financial institution or individual that actively quotes two-sided markets in a financial instrument, providing bids and offers while making a profit on the spread. Their primary role is to ensure liquidity in the market by being ready to buy or sell at any time, thereby facilitating smoother transactions for other market participants. Market makers typically hold a considerable inventory of the instruments they are trading, which allows them to manage and adjust their prices based on market demand and supply dynamics. This function is crucial in various markets, including equities, Forex, and derivatives, where they help reduce price volatility and enhance market efficiency.