What does market maker mean?

A market maker is a financial institution or individual that facilitates trading in a particular security by providing liquidity to the market. Market makers are responsible for quoting both buy and sell prices for a specific security, and they are required to maintain a certain level of inventory in order to facilitate trading. They play a crucial role in ensuring the smooth functioning of financial markets by providing a continuous and stable source of liquidity, which allows for efficient price discovery and execution of trades. Market makers earn a profit by capturing the spread between the bid and ask prices, and they also help to minimize price volatility by absorbing large buy or sell orders. In addition to their primary role as liquidity providers, market makers may also engage in proprietary trading and other market-making activities to generate additional revenue. Overall, market makers are essential participants in financial markets, as they help to ensure that trading can occur in an orderly and efficient manner.