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Market Maker

A market maker is a trader on an exchange who trades large quantities of the asset regularly. This actor is usually a large financial institution. The market maker maintains open maker orders to both buy and sell an asset within a particular market. The difference between the prices to buy or sell will be equal to the asset’s bid-ask spread.

The market maker profits by selling the asset at a lower price than they buy it for. This strategy usually does not consider whether the asset is expected to go up or down in value long-term. Market makers help markets by adding liquidity and tightening the bid-ask spread. Both of these factors mean less slippage for the other traders in the market.

Exchanges will often give market makers a unique fee structure to incentive the trading activity that makes their market most efficient. Market makers may be required to meet certain trading criteria in order to be recognized as a market maker.