> Market makers are required by to maintain a two-sided market. This means they are required to post both a bid price and an ask price at the same time.
> Market makers are required to post a price at which they are willing and able to buy and sell. These prices are commonly referred to as bid and ask prices.
Responsibilities of Market Makers
1.) Keep an orderly market.
This means they must prevent dramatic fluctuations in the price of a stock that comes under heavy buying or selling pressure. To create this liquidity, market makers must provide a two-sided market within the market bid/ask price. Liquidity happens as market makers fulfill their obligation to make markets throughout the trading day. They must advertise to sell at a certain price whenever they make a bid to buy a stock at a certain price. That’s why it’s called a two-sided market.
2.) Trade for the firm’s proprietary account.
Market makers use inside knowledge, experience, and technology to make profits on a daily basis. They take profits on the stocks they make a market in, but they also take speculative positions on the possibility of future price movements of those stocks – depending on the time of day, the market conditions, and the existing order flow.
