CISI Professional Practice Exam 2026 – Complete Prep Guide

Market makers play a crucial role in trading primarily by providing liquidity and stabilizing prices within the market. Their presence ensures that there are always buy and sell orders available, which facilitates smoother transactions between buyers and sellers. When a market maker quotes prices for securities, they are willing to buy and sell at those prices, effectively narrowing the bid-ask spread and allowing other market participants to enter and exit positions with less friction.

In addition, by maintaining inventory and stepping in to trade when there might not be enough buyers or sellers, market makers help to absorb fluctuations in supply and demand. This function becomes particularly vital during periods of high volatility, where price stability is essential. Their activities help create a more orderly market, reducing the likelihood of sharp price movements that could deter investment.

While other roles such as executing trades for retail investors or analyzing trends can be valuable, they do not encapsulate the core function of market makers as effectively as the stabilization and liquidity provision aspect does.