Market Makers & Liquidity
Who is on the other side of your trade, how market makers earn the bid-ask spread, what liquidity means for your costs, and real numbers showing how liquidity varies.
Someone has to take the other side
When you click buy, someone has to sell to you at that moment. Often it is not another investor like you but a market maker, a firm that stands ready all day to buy from sellers and sell to buyers. Market makers keep markets running smoothly so you do not have to wait for a matching investor to show up.
The bid, the ask and the spread
At any moment a stock has a bid, the highest price someone is willing to pay, and an ask, the lowest price someone is willing to sell at. The gap between them is the spread. If the bid is $50.00 and the ask is $50.02, the spread is 2 cents.
Market makers earn money by buying near the bid and selling near the ask, many thousands of times a day. For you, the spread is a cost: buy at the ask and immediately sell at the bid, and you lose the spread.
A simplified order book: bids below, asks above, the spread in between.
What liquidity means
Liquidity is how easily you can buy or sell without moving the price much. A liquid stock has many buyers and sellers, tight spreads and deep order books, so even large orders fill close to the quoted price. An illiquid stock has few participants, wider spreads and thin order books, so a single big order can push the price noticeably.
Real liquidity numbers
One way to measure liquidity is average daily dollar volume: shares traded times price. Over the 60 trading days to September 18, 2026, the differences were enormous. The median stock in our data traded about $53 million a day, and roughly a quarter traded less than $5 million a day.
| Symbol | Average daily dollar volume |
|---|---|
| SPY | About $34.5 billion |
| NVDA | About $28.1 billion |
| AAPL | About $17.9 billion |
| COST | About $1.9 billion |
| KO | About $1.5 billion |
| Median stock in our data | About $53 million |
60 trading days to Sep 18, 2026. As of September 18, 2026.
Why liquidity matters to you
In highly liquid stocks and ETFs, the spread is often a penny, and your trading cost is tiny. In illiquid stocks, spreads can be many cents or more, and market orders can fill far from the last price, a cost called slippage. Liquidity also dries up in moments of stress: at the open, near the close, around news and in market panics, spreads widen for everyone.
How market makers get paid
Besides the spread, some brokers route customer orders to market makers who pay the broker for that order flow. This is one reason many brokers can offer $0 commissions. Rules require brokers to seek the best available execution for your orders. The practical takeaway: use limit orders when spreads are wide, and judge a broker partly on the prices it actually gets you.
Practical rules
- Check the bid, ask and spread before you trade.
- Use limit orders in thinly traded stocks or ETFs.
- Avoid market orders in the first minutes after the open.
- Size positions so you could exit without moving the price.
- Prefer liquid ETFs for your core holdings.
Common mistakes
- Ignoring the spread because commissions are $0.
- Using market orders in illiquid stocks.
- Buying a large position in a stock that trades very little.
- Trading right at the open when spreads are widest.
- Assuming the last price is the price you will get.
Exchanges and dark pools
US stocks trade on many venues at once: major exchanges, smaller exchanges and private trading systems sometimes called dark pools, where large orders can be matched without showing up on public order books first. A national best bid and offer ties them together, and brokers must seek good execution across venues. For everyday investors, this system mostly works in the background. What you control is your order type, your timing and the liquidity of what you trade.
ETF liquidity is deeper than it looks
An ETF’s own trading volume is only part of its liquidity. Because authorized participants can create and redeem shares, an ETF holding very liquid stocks can usually be traded in size even if the ETF itself trades lightly. Still, spreads on small ETFs can be wider during the first and last minutes of the trading day, so limit orders remain a good habit.
Key takeaways
- Market makers stand ready to buy and sell, keeping markets smooth.
- The spread is the gap between bid and ask, and it is a cost to you.
- Liquidity is how easily you can trade without moving the price.
- Dollar volume varies enormously, from billions to a few million a day.
- Use limit orders and liquid funds to keep trading costs low.