A Market maker supplies buy and sell offers. Each quote combines a price with an available quantity under specified conditions. This provides liquidity: other people have someone to trade with. It does not guarantee a stable price, and it differs from the maker label attached to an individual order.
Klára wants to buy bitcoin and sees buy and sell prices on an exchange. Some may come from a firm that regularly makes markets: it stands ready to buy and sell while managing its own trading risk. Investor.gov explains this role through a stock-market firm quoting public prices. That helps describe the activity, but does not establish the registration or duties of an arbitrary crypto-liquidity provider. Legal status and any customer protections depend on the particular market. A useful quote does not imply a universal government guarantee. [1]
In our model, a firm quotes to buy 1 BTC at 59,990 USD and sell 1 BTC at 60,010 USD. Both prices are from its perspective: it pays a seller the lower price and charges a buyer the higher one. The gap is called the spread. If both purchases and corresponding sales actually execute at those prices, it earns 20 USD before costs. Merely displaying both offers produces no income; counterparties must accept them and the trades must execute. This is an illustrative example, not a live quote or a forecast of regular earnings. [1] [2]
Consider a different outcome of the same setup. Only the purchase of 1 BTC at 59,990 USD executes; nobody accepts the sell offer. The firm now holds bitcoin. If its next valuation falls to 59,000 USD, the revaluation shows a loss of 990 USD before costs. Until it sells, that is not yet the result of a completed sale, but price risk already exists. It is particularly uncomfortable when other traders react faster to new information and sell into a stale quote. The displayed spread offers no protection against that risk. [2]
Klára can submit a limit order herself, specifying a price boundary. On Coinbase, such an order can wait in the order book and add liquidity: when subsequently matched, it is a maker. If it immediately trades against an existing opposing offer, it is a taker that removes liquidity. One order can contain both portions. Execution matters, not merely the word “limit.” A single maker transaction does not make Klára a contracted market maker. The firm’s activity and the label for an individual fill are different levels of description. [2]
Return to the successful purchase and sale in the first model. A gross difference of 20 USD, total fees of 8 USD and other costs of 5 USD leave 7 USD. These amounts explain the arithmetic; they are not taken from a current fee schedule. A maker rate need not be zero or negative: the market and pricing tier determine it. Any discount or reward has its own eligibility conditions. Even a firm receiving an incentive still bears inventory risk and operating costs. Klára should therefore not read the spread as a guaranteed net margin on every trade. [3]
Some exchanges make special agreements: incentives come with requirements for quote quality and availability. Historical CBOT filing 24-292 from 2024 specifies minimum quote sizes, maximum spreads and time-in-market requirements for selected agricultural futures. It illustrates contractual conditions, not current rules for every bitcoin exchange. An ordinary user placing a limit order does not automatically acquire those duties. To assess a liquidity promise, one needs the product, agreement, period of validity and any exceptions. [4]
The firm need not wait for another customer. It can offset acquired price risk through another trade, for example by selling the purchased bitcoin on another market. This is hedging. Yet the other market has its own prices, quantities and fees. An order may fill partly or not at all, leaving residual exposure: the result remains sensitive to further price moves. Hedging is therefore neither automatic nor free. Its costs and actual execution belong in the same overall calculation as the original quotes. [2] [3]
Klára benefits from having offers available to trade against. She still reads price together with available size. A quote may be filled or canceled before her order arrives, and a larger order can reach additional price levels. Trading restrictions may alter execution too. A market maker helps supply counterparties, but guarantees neither a stable price, immediate execution of any trade, nor a customer’s profit. Liquidity is a specific offer at a specific moment, not an unlimited promise. [2] [4]
For the clearest picture, read this entry together with Bid–ask spread, Limit order, Market order, Slippage. The reverse links also lead from Bid–ask spread, Institutional OTC desk, Maker–taker.