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Finance Glossary

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Over 700 finance terms, Shmooped to perfection.

Market Maker

Definition:

Let's say you have a certain stock and you want to sell. You call your broker, but he's got some bad news: "No one's buying thiscomapnysucks.com right now. I don't know why. Sorry."

What do you do? You need a market maker. This institution or individual buys and sells shares of a certain company or industry in order to literally create a market for guys like you—people who want to buy and sell. He accepts a lot of risk, but since he's creating the market, he also gets to name his price. Market makers can also charge commissions.  

Example

Some guy at the NYSE put up a few million dollars of his own money to buy and sell shares of GM. He has various rules he must follow, and as long as he is a good boy, he can offer GM at $34.12 (where he is a seller) and bid for GM at $34.02 where he is a buyer—and live off of the dime per share spread. He'll need a lot of dimes to pay his bills.