Market Makers and Specialists

Market makers stand ready to buy and sell all day, earning the bid-ask spread in exchange for providing liquidity. Here is how they work, what happened to the old floor specialists and why spreads matter to you.

Always a buyer and a seller

A market maker continuously posts prices to buy (the bid) and sell (the ask). If a stock is quoted $100.00 bid and $100.02 ask, the market maker hopes to buy at $100.00 and sell at $100.02, earning 2 cents a share. Doing that millions of times a day adds up, but market makers must manage the risk of prices moving against them.

The bid, the ask and the spread between them.

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