Market Makers & Liquidity Providers
The participants who are always willing to quote a price — and how they earn the spread.
Ever wonder why there’s almost always someone to buy from or sell to instantly, even when no “natural” buyer exists? That’s the work of market makers — participants who continuously quote both a bid and an ask, standing ready to trade either side.
Their profit is the spreadThe gap between the highest buy price and lowest sell price.: they buy at the bid, sell at the ask, and pocket the small gapA jump between one bar’s close and the next bar’s open., thousands of times a day. In exchangeA regulated marketplace where shares are bought and sold., they provide the liquidityHow easily an asset can be bought or sold without moving its price. that lets everyone else trade smoothly.
They’re most visible in optionsThe right, not the obligation, to buy or sell at a set price. and less-liquidHow easily an asset can be bought or sold without moving its price. stocks, where natural buyers and sellers don’t always coincide. In hyper-liquidHow easily an asset can be bought or sold without moving its price. large-caps, ordinary investors’ orders provide most of the liquidity themselves.
Are market makers manipulating the price?
No — legitimate market making is a regulated, recognised function that adds liquidity. They profit from volume and the spread, not from pushing prices around. Manipulation is a separate, illegal activity that SEBI polices.