What is the primary functionality of market makers in a financial market?

Market makers play a crucial role in financial markets by providing liquidity through the consistent buying and selling of securities. This involves setting bid and ask prices for stocks or other trading instruments, facilitating transactions between buyers and sellers. By being willing to buy at a lower price and sell at a higher price, market makers ensure that there are always orders available, which helps to maintain a stable and efficient market. This liquidity is essential for investors as it allows them to enter and exit positions without causing significant price fluctuations.

The ability of market makers to provide liquidity means that investors can trade more easily, which stabilizes prices and reduces volatility in the market. With their presence, investors can be assured that they can find a buyer or seller for their securities at any time during trading hours. This vital function helps to enhance market efficiency and confidence among participants.