Who's on the Other Side of Your Trade?

Whenever you buy a share, someone else is selling it to you — and whenever you sell, someone else is buying. That other side is usually one of two things: another everyday investor placing an order through their own brokerage, or a market maker, a firm whose whole job is standing ready to buy or sell almost any listed stock at any moment.

Market makers exist to provide liquidity: the ability to buy or sell quickly without waiting around for a matching order to show up on its own. In exchange for constantly offering to trade, they profit from the small difference between the price they'll buy at and the price they'll sell at — a gap called the bid-ask spread.

The ability to buy or sell a stock quickly, without waiting for a matching order, is called ____.

Not every stock is equally liquid. A large, well-known company traded by millions of people has extremely high liquidity — orders get matched almost instantly. A small, thinly-traded company might have far fewer buyers and sellers at any given moment, meaning trades can take longer and prices can jump more with each one.

What does a market maker's role actually involve?

Every stock on an exchange has exactly the same level of liquidity.