The Designated Market Makers (DMMs) on NYSE and the Market Makers on NASDAQ hold shares in their inventory in order to facilitate liquidity. Given that stock prices change throughout the day, how do these market makers ensure that their inventory will not lose value? For example, suppose the market maker's inventory shares cost an average of $100 per share. Suppose the stock price falls to $80. This causes the market maker to lose 20%. How do market makers ensure that their inventory will not lose too much value?
I am asking this question because, by the reasoning above, I think that market-making is a highly risky business with little profit. I think I might be wrong.