No, market makers are different from brokers. Though market makers are trading members of exchange, they have distinct roles and functions:
Market Maker
- Role: A Market Maker is a financial institution who facilitates trading by continuously quoting bid and ask prices for certain securities.
- Function: Market makers buy and sell securities from their own inventory to ensure liquidity and facilitate smooth trading. They contribute to market efficiency by managing bid-ask spreads and stabilizing prices.
- Compensation: Market Makers earn profit from the difference between the bid and ask price (the spread) and generally do not charge commissions on transactions.
Broker
- Role: A broker is an intermediary who executes buy and sell orders on behalf of clients (retail investors, institutional investors or traders) for a commission or fee.
- Function: Brokers provide access to the financial markets and execute trades according to the instructions of their clients. They may provide investment advice, research and other financial services.
- Remuneration: Brokers receive commissions or fees based on the volume or value of the transactions they conclude for their clients.
