Banque d’investissement / Investment banking

What is a market maker?

For the financial markets to function efficiently, traded products must be highly liquid. Thus, when buyers want to open or close a position, they need a counterparty for their transaction at all times. 
The role of the market maker is to provide this liquidity. Indeed, any new market gives a group of banks or brokers the task of ensuring the liquidity of securities by continuously offering buying and selling price ranges for all market products. The market maker hence gives the opportunity to any buyer or seller to find a counterparty on the market at any time. 
In exchange for playing this critical role, market makers benefit from privileged access to the market and, most of the time, free transactions. They also benefit from the market spread: they will buy at the lowest price and sell at the highest. 

What are the risks for market makers?

Their obligation to give continuous prices for all products may sometimes force market makers to take unwanted positions in their portfolio. Thus, market makers often accept to trade an extremely illiquid product and end up stuck with positions that are hard to unwind.