Markets

How Market Makers Work and Why They Exist

Astron Team · 09/24/2026 · 4 min read

For any buy or sell order to be executed, someone needs to be on the other side, willing to trade at that exact moment. For many assets, especially less-traded ones, that doesn't always happen spontaneously — and that's where the market maker comes in.

What a market maker commits to doing

A market maker is an institution — a bank, brokerage, or specialized firm — that commits to continuously offering both a buy side and a sell side for a given asset, ensuring there's always someone willing to trade with whoever wants to buy or sell at that moment. This commitment is what sustains liquidity for many assets, especially outside the hours of greatest natural market activity.

Where the market maker's profit comes from

The market maker's main gain comes from the spread — the difference between the buy price and the sell price it offers itself. If it buys at R$ 24.98 and sells at R$ 25.02, it pockets R$ 0.04 per unit traded on both sides, repeated many times throughout the day, in high volume. This business model depends on turning over high volume with a small margin per trade, not on getting the price direction right — the market maker, in theory, stays neutral between the two sides, simply capturing the spread.

Why this service is necessary

Without someone continuously guaranteeing both sides, assets with little natural volume would have much wider and less predictable spreads, with the price swinging sharply on every large order — because there would be no counterparty available at the right moment. The presence of market makers reduces that friction, making it easier to buy and sell quickly, at a more predictable price, even for assets that don't have a huge amount of natural trading volume.

How the market maker's risk is managed

Although the goal is to stay neutral, the market maker ends up, momentarily, with residual positions — a bit more long or short than it would like, depending on the order flow it receives. To manage that risk, it continuously adjusts the prices it offers: if it's accumulating more of a long position than it wants, it tends to slightly lower its sell price to attract more buyers and rebalance its position, and the opposite when it's more short. This continuous adjustment is part of why the price moves so fluidly throughout the trading session.

What this means for retail traders

Understanding this role helps explain why the spread widens around major news: the risk of keeping both sides open increases when the price can jump sharply, and the market maker protects itself by widening the gap between buy and sell prices at those moments. It also explains why less liquid assets, without an active market maker, tend to have wider spreads all the time — there's no one constantly absorbing that risk.

The difference between a market maker and an execution broker

It's common to confuse the market maker's role with that of the broker you use to send orders. The broker is the channel through which your order reaches the market; the market maker is the one who, on the other side, guarantees there's a counterparty available to trade. In some models, the broker itself may also act as a market maker for certain assets, but that's regulated and disclosed, and it doesn't change the core principle: someone needs to commit to both sides for liquidity to exist consistently.

A structural piece, not a threat

The presence of market makers is a structural feature of any organized market, regulated by exchanges and supervisory bodies, and shouldn't be confused with price manipulation. Their role is to provide the liquidity that lets orders be executed quickly — the final price of any asset remains the result of the balance among all buyers and sellers participating in the market, not the isolated decision of a single party. Understanding this mechanism helps retail traders better interpret why the spread varies throughout the day, instead of seeing that variation as something arbitrary.