Stock market basics
Market maker
Definition
A firm that keeps posting both a bid and an ask in a stock and earns the spread when both sides fill. Nasdaq stocks have several competing market makers.
Example
Say a market maker posts a bid of $20.00 and an ask of $20.02 on a stock. If one trader sells it 1,000 shares at $20.00 and another buys 1,000 shares from it at $20.02 a moment later, the firm earns the $20 spread. If the price drops to $19.90 before any buyer shows up, though, the 1,000 shares it is holding lose $100.
Hypothetical numbers, for illustration only.
Also defined in
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