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What is a Market Maker Spread?

A market maker spread is the difference between the bid and ask prices offered by a market maker.

How Does a Market Maker Spread Work?

The market maker spread is calculated by subtracting a market maker's ask price (price at which he/she is willing to sell a security) from the bid price (price at which he/she is willing to purchase a security). The resulting number is the profit that the market maker earns for each order processed.

For example, suppose a market maker offers to sell shares of stock ABC for $52 per share and offers to purchase shares at $48 per share. The market maker spread would be $52 - $48 = $4.

Why Does a Market Maker Spread Matter?

The size of a market maker spread is inversely correlated with the volume of trades conducted by the related market maker. In other words, a market maker that offers a small spread processes a high number of orders, and vice versa. Highly liquid markets tend to have very small spreads. Market maker spreads are regulated to prevent market price distortions.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.