What is the primary function of a market maker?

The primary function of a market maker is to facilitate trades and provide liquidity in the market. Market makers are firms or individuals that commit to buying and selling specific securities at publicly quoted prices, thereby ensuring that there is always a market for those securities. This practice helps to stabilize prices and enables investors to execute trades quickly and efficiently without having to wait for a counterparty to emerge.

By continuously offering to buy and sell, market makers enhance liquidity, which means that securities can be traded more easily and at more stable prices. This role is crucial for the functioning of financial markets since it reduces the chances of drastic price fluctuations caused by lack of trading activity. In essence, market makers help create a more efficient and accessible marketplace for all participants.