What Are Market Makers? How They Work, and Who Fills Your Orders

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-06 · Updated 2026-10-27 · Reviewed 2026-10-27

Market makers are firms that quote a price to buy and a price to sell a security at the same time, and earn the gap between the two, the spread. In FINRA’s data for the week of 5 October 2026, three of them filled 50.78% of the 12.36 billion Tier 1 shares that dealers traded away from exchanges and dark pools.

How it works

A market maker posts two prices at once: one it will buy at and one it will sell at. Both are live, both are for a stated size, and both are updated continuously through the session.

The obligation is the point. A retail trader quotes nothing and waits for a setup. A market maker is committed to being on both sides whether the moment is attractive or not, and that commitment is what makes a market continuous rather than sporadic.

Their revenue is the spread. Buy at the bid from someone who wants out, sell at the ask to someone who wants in, and the difference is earned without any view on direction.

Quoted at 99.98 bid and 100.02 ask, that spread is 0.04% of the price. Multiply a small number by an enormous count of trades and you have the business model.

Two kinds of market maker

On an exchange, market makers post quotes in the order book. Those quotes are public, and a designated market maker on a listed venue also takes on duties to keep quoting its stocks.

Off the exchange, wholesalers fill retail orders directly. A broker sends its customers’ orders to a firm such as Citadel Securities or Virtu, which fills them itself as a dealer, at a price no worse than the best quote displayed on the exchanges. The order never reaches a public book. That routing is what payment for order flow pays for.

So for a small market order, the other side is usually not another trader. It is a firm whose business is to take the other side of nearly everything and lay the risk off later.

The inventory problem

The risk is inventory. Having bought from sellers all morning, a market maker is long a position it did not choose, and the price can keep falling while it holds it.

That is the actual danger in the business, and it is why quoting is not free money. The spread is compensation for being obliged to accumulate exactly what everyone else is trying to get rid of.

Inventory gets hedged rather than held. A firm long shares from customer flow will typically offset that exposure elsewhere, in a correlated instrument, an index or an option, which is how activity in one market spreads into another.

A worked example: a hypothetical morning of quoting

Take a hypothetical firm quoting 99.98 bid, 100.02 ask. Sellers hit the bid all morning; the firm accumulates 40,000 shares at an average of 99.98 and has earned nothing yet, because the spread is only realized when the position is unwound.

If buyers arrive in the afternoon, those shares go out at 100.02 and the firm has earned four cents a share, $1,600 on the 40,000, for providing continuous liquidity. If instead the price falls to 99.50, the loss on the inventory is $19,200 and the four cents is irrelevant.

Quote width tracks uncertainty. When the next price is hard to predict, the risk of being filled just before a large move rises, and the quote widens to compensate. The widening is a measurement of uncertainty rather than a punishment.

The original data

FINRA publishes, every week, how many shares each dealer traded off-exchange outside the dark pools. Its OTC (non-ATS) table for NMS Tier 1 stocks, the S&P 500, Russell 1000 and selected exchange-traded products, covers the week of 5 October 2026 and was first published on 26 October.

That week 165 firms reported 12,360,204,552 shares in 82,748,474 trades. Ranked by shares:

Three firms filled half, 50.78%. Seven filled 80.60%, and 124 of the 165 reported under 0.1% each. Seven of the eight largest averaged between 116.73 and 228.23 shares a trade, the size of small orders, while Morgan Stanley averaged 2,433.24, a sign of larger institutional fills.

The order changes slowly, but it does change. Averaged over each year’s weeks, HRT Financial’s share rose from 1.80% in 2023 to 3.55% in 2024, 8.44% in 2025 and 8.99% so far in 2026, while Virtu Americas went from 19.35% to 14.12%. Citadel Securities sat between 21.62% and 23.74% in all four years. Every week and firm is in the yearly table.

Checked two ways. FINRA’s separate per-stock-by-firm table for the same week sums to exactly the same 12,360,204,552 shares and ranks the same three firms first; it folds 31.99% of the shares into a single “De Minimis Firms” line, so the firm table is the one used here. And for SPY alone, dealers traded 39,810,279 shares off-exchange that week, 22.76% of the 174,939,300 shares Yahoo Finance reports as the fund’s total volume; Nasdaq’s total differs by 110 shares and gives the same 22.76%.

What the table does not show is dark-pool trading. The 33 alternative trading systems reported another 6.62 billion Tier 1 shares that week in a separate FINRA table, so dealer fills were 65.12% of the off-exchange shares FINRA lists.

When it fails

The failure mode from a trader’s seat is reliability at the wrong moment. Quotes are tightest when conditions are calm and cheap to trade, and widest during news, at the open, and around halts. Exactly when you most want to transact, the cost of doing so is highest.

Quoting duties do not fix the width. They keep a firm on both sides; they do not keep the quote as tight as it was in calm conditions, and the width is a business decision remade continuously.

And an electronic market maker can step back. In disorderly conditions quoting becomes uneconomic, quotes thin out, and the depth that made a symbol feel liquid all year is not there on the one day it mattered.

The second failure is on the trader’s side rather than theirs. Judging a symbol’s liquidity from its quote on a calm afternoon produces a number that does not survive contact with news. Liquidity is a condition, not a property of the instrument.

A third misreading is treating quote movement as a forecast. A quote that steps down before price falls looks like foreknowledge and is usually inventory management: a firm already long from customer selling lowers where it is willing to buy more.

The practical response is unglamorous. Trade the liquid part of the session where you can, size to the depth that is actually showing, and treat a suddenly wide quote as information about conditions rather than an invitation to push through it.

Questions people ask

How do market makers make money?

From the spread: buying at the bid and selling at the ask. In the hypothetical morning above the firm earns four cents a share, $1,600 on 40,000 shares, but only if it sells the inventory before the price moves against it.

Who are the biggest market makers?

By FINRA’s count of off-exchange dealer trades in Tier 1 stocks for the week of 5 October 2026: Citadel Securities with 23.93% of shares, Virtu Americas with 14.19% and HRT Financial with 12.66%, followed by Jane Street, Morgan Stanley, Goldman Sachs and G1 Execution Services.

Is a market maker trading against me?

It takes the other side of your trade, but it is not betting on your direction. It aims to end the day flat and hedges what it accumulates. The spread is a real cost to you, and it is the whole of the market maker’s intended profit.

Do market makers fill most trades?

Not most, but a large share. In SPY that week, 22.76% of all shares traded were filled off-exchange by dealers; the rest traded on exchanges, where market makers are among many quoting firms, or in dark pools.

Related

The bid-ask spread is the fee this business earns. The order book is where exchange market makers’ quotes rest. And payment for order flow is the arrangement by which retail orders reach the wholesalers in the table without ever touching an exchange.

This page is educational, not financial advice. Test every idea on your own charts before risking money.