Market makers play a crucial role in financial markets by providing liquidity and facilitating smooth trading. They are firms or individuals that commit to buying and selling securities at specified prices, effectively creating a market for those securities. By continuously quoting bid (buy) and ask (sell) prices, market makers ensure that there is always a counterparty available for traders, which helps maintain market efficiency.

One of the primary functions of market makers is to reduce the spread between the bid and ask prices, making it easier for traders to execute orders quickly. This liquidity provision is especially vital in less liquid markets, where finding a buyer or seller can be challenging. Market makers profit from the difference between the bid and ask prices, known as the spread.