A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn.
I don't quite understand it. It may clarify things if we can compare it to similar concepts. What is the difference between a market maker and a broker, and a dealer?
- If I understand correctly, a broker does not actually buy and sell, but match the demand of a buyer to the supply of a seller.
A dealer acts as a principal and trades for his or her own account.
I wonder what "principal" mean?
Does a market maker actually buy and sell, and for their own account?
Is a market maker a special kind of broker, or a dealer?