Market makers are key players in determining the bid-ask spread, the difference between buying and selling prices.
They provide liquidity by consistently quoting both prices, narrowing the spread through competition in active markets.
However, they also adjust the spread based on their inventory, widening it to discourage buying when overstocked, or narrowing it to attract sellers.
Market volatility and uncertainty often lead to wider spreads as market makers protect themselves from potential losses.
The level of competition among market makers also impacts the spread, with more competition typically resulting in tighter spreads.
Ultimately, market makers balance profit with their role in ensuring smooth market functioning.
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