A market maker is a participant who quotes both a bid and an ask, standing ready to buy and sell an asset. By keeping orders on both sides of the book, market makers supply the liquidity that lets other traders execute quickly.
Their compensation comes largely from the spread, the small difference between the price at which they buy and sell, repeated across many trades. To manage the risk of holding inventory, they continuously adjust their quotes as prices and order flow change.
Market makers are a structural feature of most active markets. Their presence tends to tighten spreads and deepen the order book, while their withdrawal during stressed conditions can thin liquidity quickly. Understanding their role helps explain why spreads and depth vary across assets and over time.