A market maker is a financial institution or individual that continuously provides bid and ask quotes for specific securities or markets, facilitating trading by offering liquidity to other market participants. Market makers profit from bid-ask spreads while taking on inventory risk from holding positions. They play crucial roles in maintaining orderly markets and efficient price discovery.

Market makers use sophisticated technology and risk management systems to adjust pricing based on market conditions, inventory levels, and order flow patterns. During volatile periods, market makers may widen spreads or reduce position sizes to manage risk. Understanding market maker behavior helps traders anticipate liquidity conditions and execution quality.

Real-world example: A designated market maker in Apple stock continuously quotes bid $149.95/ask $150.05, earning the spread while providing liquidity to investors wanting to trade, adjusting prices quickly based on supply-demand flows and news events.