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What is a market maker?
A market maker is a firm or trader that stands ready to both buy and sell an asset at publicly quoted prices, keeping an order book stocked. It earns mainly from the gap between the price it pays and the price it charges, the bid-ask spread.
What it means for you
When market makers are active you can usually trade quickly near the last price; when they pull back, as can happen in a sharp fall, spreads widen and your order can fill far from the quote. Before a large trade, look at the spread and the depth of the order book, not only the last price.
How it works
On regulated exchanges, a market maker is a dealer with an obligation to buy when sell orders pile up and to sell when buy orders do, letting its inventory absorb temporary order imbalances. It is paid for that risk by keeping its selling price sufficiently above its buying price. On a decentralized exchange an automated market maker plays a similar role without a firm: a pool of deposited tokens and a formula, such as keeping the product of the two balances constant, set the price for each trade.
Sources: CFTC Glossary, Investor.gov glossary: Market Makers, Zhou, Qin, Ferreira Torres, Le and Gervais: High-Frequency Trading on Decentralized On-Chain Exchanges (arXiv) · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.