A market maker quotes buying and selling prices and can trade as principal, using its own inventory. Its formal obligations depend on the market, registration and programme. Market makers can support liquidity, but their presence does not guarantee an available counterparty at every price or during every disruption.

The spread is potential revenue, not guaranteed profit

Suppose a hypothetical market maker buys 100 shares at $50.00 and later sells them at $50.02. The gross difference is $2 before costs. But the two trades may not occur at those prices or in that sequence. If the market falls while it holds inventory, the loss can exceed the spread it hoped to capture.

Market makers manage inventory, hedging costs and adverse selection: the risk that a counterparty trades just before the price moves against their quotation. Some strategies seek to keep net exposure small, but it is inaccurate to say market makers never take directional risk or earn the quoted spread on every trade.

Liquidity comes from several participants

A resting limit order can add available interest even when its owner is not a registered market maker. Other investors, funds and trading firms also contribute to the order book. Acting as a liquidity provider for one order does not give a retail trader the legal status or obligations of a professional market maker.

US stocks can execute across exchanges and off-exchange venues. FINRA's market-structure guide explains why a listing venue is not the whole market. Designated roles also differ: NYSE's equities overview describes designated market makers within its particular model.

What this means for your orders

The spread, available quantity and speed at which quotations change affect execution costs. Competition can help prices, but a tight quoted spread does not guarantee negligible slippage for an order larger than the available size.

A marketable limit order can still cross the spread. A nonmarketable limit order can avoid paying that immediate spread if filled, but may not execute and may fill just before an unfavorable move. “Always use limits to save the spread” leaves out these tradeoffs.

The SEC's execution explanation describes routing choices and payment for order flow. Those arrangements can create conflicts that brokers must manage; they do not establish that every retail fill is abusive or every market maker acts without conflicts.

Can market makers see your stop?

Visibility depends on where and how the stop is held. An order retained by your broker or trading software is not necessarily displayed in an exchange book. Public depth is not a complete list of every participant's stop orders.

A stop being triggered does not itself prove deliberate targeting. To investigate an execution, compare the order's trigger rules, timestamp, relevant bid or ask, trade records and broker explanation. Avoid inferring misconduct solely from a chart reversing after your exit.

Focus on evidence you can use

Compare actual fills with the quotations available when orders were submitted, allowing for timestamps and data coverage. Track spread and slippage by instrument, session and order size. Understand the broker's complaint route if a specific fill appears inconsistent with its terms.

Knowing the market-maker model helps explain why liquidity has a cost and why quotes can change. It does not reveal a guaranteed way to predict the next price move or remove execution risk.

Risk Disclaimer: Trading involves substantial risk of loss. Past performance is not indicative of future results. See our full risk disclaimer.