In plain English
What Market maker means
Market makers help create a tradable market by publishing or responding to bid and ask prices. In some markets they quote continuously; in others they provide liquidity more selectively. They may earn the spread or other fees, and they may trade as principal against client orders depending on the venue and business model.
Why it matters
Market makers can improve available liquidity and reduce the chance that a trader has no counterparty. At the same time, because they may be on the other side of a trade, their role is different from an agency-only router or exchange venue, so execution quality and conflicts should be understood clearly.
Example
If the best bid in a security is 100.00 and the best ask is 100.05, a market maker may quote both sides and fill a customer buy at 100.05 while committing capital to the trade. In this simplified example, the market maker earns the spread if it later offsets the position.
Quick answers
Common questions
Does a market maker set the market price?+
No. It quotes prices within the prevailing market structure and may adjust them as conditions change.
Can a broker also be a market maker?+
Yes, in some markets and business models a firm can perform both roles.
Sources