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Traditional market makers are usually 
under contractual arrangements with the 
stock exchange and are incentivized to 
achieve benchmark quoting requirements. 
High frequency traders can also act as 
market makers and play a vital part in the 
overall ecosystem. Market Makers operate 
in the stock markets for the following 
• Futures
• Options

Exchange-traded products (ETPs)

Market makers can choose to have the 
following quoting benchmarks:


make a market on a continuous basis

• make a market in response to quote 


• make a market both on a continuous 

basis and in response to quote requests

Types of Market Makers

The most common type of market maker is 
a brokerage house that provides purchase 
and sale solutions for investors in order 
to keep the financial markets liquid. A 
market maker can also be an individual 
intermediary, but due to the size of 
securities needed to facilitate the volume 

of purchases and sales, almost all market 
makers are or work for large institutions. 
"Making a market" means a willingness 
to buy and sell the securities of a defined 
set of companies to broker-dealer firms 
that are member firms of that exchange. 
Each market maker displays buy and sell 
quotations for a guaranteed number of 
shares. Once an order is received from 
a buyer, the market maker immediately 
sells from its own holdings or inventory 
of those shares to complete the order.

Thus, market making enables the smooth 
flow of financial markets. Without this, 
investors and traders would not be able to 
buy and sell as easily. Less transactions 
in a market naturally translates to less 
investing, overall.  Investing less would 
reduce funds available to companies 
and tend to decrease prices of shares of 
smaller companies without as wide a base 
of investors. Exchange rules often have 
more than one category of market maker. 
Within the rules, a market maker firm can 
decide to commit to more responsibility 
for the smooth market performance of 
the specific securities in which it agrees 
to make a market. The market maker’s 
commitments include continuously 
quoting prices at which it will buy or 

bid, and sell or ask for securities. Market 
makers also have to quote the volume 
in which it is willing to trade and the 
frequency of time it will quote at the 
Best Bid and Best Offer (BBO) prices, 
and how it will do all of the above during 
all kinds of market hours and conditions. 
When markets become erratic or volatile, 
market makers need to keep a cool head to 
facilitate smooth transactions.

Market Makers Vs Brokers

A broker is an intermediary who has a 
license to buy and sell securities on a client's 
behalf. Stockbrokers coordinate contracts 
between buyers and sellers, usually for a 
commission. A market maker, on the other 
hand, is an intermediary that is willing 
and ready to buy and sell securities for a 
profitable price. A broker makes money 
by bringing together securities' buyers and 
sellers. Brokers have the authorization and 
expertise to buy securities on an investor's 
behalf - not just anyone is allowed to walk 
into the New York Stock Exchange and 
purchase stocks; therefore, investors must 
hire licensed brokers to do this for them. 
A flat fee or percentage-based commission 
is given to the broker for carrying out a 
trade and finding the best price for a