Market-Maker

A market-maker is a firm or trader that continuously offers to buy and sell a particular stock (or other instrument), posting both a bid price (what it will pay) and an ask price (what it will sell for) at all times during trading hours. Their job is to be there when nobody else is, so that anyone who wants to trade a stock can generally find someone to trade with, even if there's no matching public order at that exact moment.

They make money on the spread, the small gap between the bid and the ask. If a market-maker is bidding $10.00 and asking $10.02 for a stock, and both sides get hit repeatedly throughout the day, they pocket that $0.02 difference many times over. In exchange for providing this constant liquidity, exchanges have historically given market-makers certain obligations (like maintaining a two-sided quote of a minimum size) and, in some structures, certain privileges or rebates.

The nuance beginners miss is that a market-maker isn't picking a direction or betting the stock goes up or down; it's providing liquidity and managing inventory risk. If more people are selling than buying, the market-maker ends up holding a growing pile of stock and will usually move its bid and ask lower to attract buyers and discourage more selling, which is part of why prices move the way they do on order flow imbalances. Market-makers are also not the same thing as "the exchange" itself, and on many modern markets, high-frequency trading firms perform a similar role electronically rather than a person physically standing at a post.

It's also worth separating designated market-makers, who have formal exchange obligations and sometimes special affiliation with specific listed stocks, from firms that simply choose to make markets voluntarily across many symbols using algorithms. Both post two-sided quotes, but only the former carries formal exchange-assigned duties.