Any thriving marketplace has two types of traders: market makers and market takers.

Market makers generally try to buy at the current best bid or sell at the current best offer, i.e., they are making a market that is reflected in the current last price. Market makers are almost always willing to buy or sell, but may be inclined to step away in times of extreme volatility. 

Market takers are less concerned with executing at the best bid or offer. Instead, they seek liquidity and immediacy, which is enhanced by the constant availability of a tight bid/ask spread created by the market makers. The relationship between market makers and market takers is symbiotic. Each needs the other in order to thrive. 

Market Maker

The market maker looks to get paid by receiving a premium from the market taker in return for providing constant liquidity. This premium is called an edge, and is typically quantified as the difference between the bid and offer.

Market makers tend to turn over their positions rapidly, generally not caring whether they are long or short. Their goal is to always be positioned in the market, because every moment they are trading with the edge can lead to potential profits with relatively low risk. Conversely, every moment they are not in the market imposes an opportunity cost. Thus, market makers often operate in many different markets simultaneously so their profitability is not tied to the order flow in one specific market.

Market Taker

Market takers need liquidity and immediacy to ensure a reasonable price exists whenever they need to enter a trade or close an existing position. Market takers accept that they must give up the edge in return for the service provided by the market maker. Market takers tend to turn over their positions less frequently than market makers and, therefore, generally are less concerned about trading costs.

There are some market takers who trade frequently, but market makers tend to be far more active in terms of volume and number of transactions, due to the nature of their business.

Test your knowledge

ACCREDITED COURSE

Did you know that CME Institute classes can fulfill CFA and GARP continuing education requirements? Every CME Institute course can be self-reported in your CFA online CE tracker and select classes can be used for GARP credits. See which of our classes qualify for GARP credits here.

What did you think of this course?

To help us improve our education materials, please provide your feedback.

Extend your learning

Put your knowledge into practice with the Trading Simulator

Get hands on experience with the latest Trading Challenge

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2022 CME Group Inc. All rights reserved.