This is my understanding..
Market Makers work by contributing liquidity to the market and standing ready to take the other side of trades, earning the bid-ask spread for this service. Spread betting providers are essentially market makers who work just like stock broking firms. Stock exchanges traditionally have market makers on the floor setting the prices. Their function is to buy and sell stocks, standing ready to provide a quote at any time. As their ultimate goal is to balance the amount of stocks bought and sold overall, they set the price to try and achieve that, but it is their responsibility to provide liquidity so that anyone can trade at any time.
The spread betting provider has a similar task. Spread betting involves a bid and an ask price, the difference between these being the spread, and in the case of spread betting on stocks for instance these prices will typically bracket the price offered on the exchange. The provider's task is a delicate balancing act; the prices the market maker quotes should be such that he gets an equal number of buyers and sellers, so that he is not left speculating on the price move. The provider's profit does not come from speculation on the direction of the market, but from the spread i.e. from the different market participants crossing the provider's bid-ask spread quote to go long or short.
In ideal conditions each time someone goes long another trader would go short the equivalent amount eliminating the net exposure. But in the real world prices are constantly changing, and market makers must stay on top of the market's supply and demand in order to have a successful business. Therefore, when many more spread traders are going long than short on a particular market, the company will need to hedge its excess exposure in the markets or futures contracts. As there are many spread betting providers vying for the traders business, the individual provider must not only balance his exposure, spread and market prices, but must also compete against other providers who could offer better terms and attract business away.
