Market Maker
A market maker provides liquidity by quoting bids and asks, helping tighten spreads and stabilize execution.
Definition
A market maker is a participant that provides liquidity by posting both bids and asks in the order book.
Why it matters
Strong market making usually tightens the bid ask spread, improves fill quality, and lowers execution cost measured by effective spread. Weak market making leads to thin books, unstable quotes, and higher execution risk.
Common pitfalls
Assuming makers are always present: In uncertainty spikes, makers may widen spreads or pull quotes.
Confusing tight top with deep market: A market can look tight but still lack depth for size.