We are independent & ad-supported. We may earn a commission for purchases made through our links.
WiseGEEK

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

What is a Market Maker?

By John Sunshine
Updated May 17, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A market maker is a special type of broker whose function it is “make” the market for a particular stock. The market maker will hold a certain number of stock shares in his or her inventory for the express purpose of being able to sell them to the person bidding to purchase them, or will add to his or her inventory by purchasing stock from a seller offering stock shares. In some cases, the market maker may just match up the buyer and seller of the stock shares.

A market maker takes no commission on the sale, but instead makes a profit from the difference between the bid and ask price. The potential seller of the stock sets the price at which the share will be sold; this is the ask or asking price. The potential buyer of the stock will offer or bid a price at which the stock will be purchased. These two prices are rarely equal, and the market maker will only make a trade when there is sufficient difference to yield a profit in the sale. On heavily traded stocks, in which hundreds of thousands of shares trade in a single day, the market maker can still make a handsome profit even if this difference is very small.

The NASDAQ market is composed of over 300 market makers. Since a market maker makes a profit on every sale, whether the market goes up or down, the right to be a market maker on a market like the NASDAQ is worth a great deal of money. The opportunity to become a market maker is very rare, and usually a purchased right. It is not possible simply to decide to become a market maker and start a business as such.

To ensure an efficient and effective market, there are on average 14 market makers per stock on the NASDAQ exchange. Each market maker competes with the other market makers for each stock deal that is proposed. The intention is that, in this way, the market remains competitive and fair for everyone involved. The New York Stock Exchange has dealers who fill similar roles. However, on the New York Stock Exchange, these dealers are referred to as market specialists and not market makers, though they serve the exact same purpose.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
See our Editorial Process Share Feedback

Related Articles

Discussion Comments

By anon22476 — On Dec 04, 2008

What kind of things should familiarize myself if I am applying for a job at a market maker?

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.