The spread pays for being ready
A market maker keeps a two-sided quote in the market: a bid, the price at which it will buy, and an ask, the price at which it will sell. The difference is the bid-ask spread. A customer who wants to trade immediately can accept one of those posted prices rather than wait for another trader to appear.
That convenience is the service being sold. If a market maker buys a share at its bid and later sells it at its ask, the spread is the gross amount left between the two trades. For example, buying at $99.99 and selling at $100.01 leaves two cents before costs. Repeating that small margin across many completed trades can add up.
Why the spread is not guaranteed profit
The two trades do not always arrive neatly in sequence. After buying, the market maker may have to hold the asset while its price falls; after selling, it may need to buy it back at a higher price. That exposure is called inventory risk. The spread is meant to compensate for providing immediacy, but it can be overtaken by a price move before the other side of the trade happens.
There is also a risk that a customer is trading on information the market maker has not yet incorporated into its quote. In that case, the posted price may quickly become unfavorable. Market makers manage these risks by adjusting quotes, and the spread can widen when trading is less predictable or the asset is harder to trade.
Small margins, many trades
So the spread is better understood as the core gross compensation for standing ready—not a guaranteed net profit on every trade. Operating expenses and losses on inventory matter, too. The model depends on making enough successful trades for the collected spreads to outweigh those costs and risks.
A market maker’s role is therefore more than collecting a gap between two prices: it absorbs the uncertainty of being available now, so someone else can trade without waiting for a matching counterparty.
