Market Makers play a crucial role in maintaining liquidity and stability in financial markets. They are entitiesóusually brokerage firms or financial institutionsóthat continuously quote both buy and sell prices for securities, ensuring that traders can execute orders quickly without significant price fluctuations. By narrowing the gap between the bid and ask price, market makers help create efficient and fair trading environments.

In essence, a market maker provides two-way quotes: one price at which it is willing to buy (bid) and another at which it is ready to sell (ask). The difference between these two is known as the spread, which represents their profit for taking on the risk of holding inventory. This process supports smooth trading, especially for highly traded securities such as equities, exchange-traded funds (ETFs), and derivatives.

Market makers are particularly vital in markets with lower liquidity. Without them, investors might face wide spreads, delayed trade execution, or even an inability to find counterparties for their trades. For instance, in stock exchanges like the NSE or BSE, market makers help stabilize prices by stepping in when buying or selling interest is low.

SEBI regulations in India ensure that market-making activities remain transparent and fair. These regulations prevent manipulation and ensure that prices reflect true demand and supply. Market makers must adhere to stringent capital and reporting requirements to maintain market integrity.

In summary, market makers act as intermediaries who absorb temporary imbalances in trading activity, enhance market depth, and support continuous price discovery. Their presence not only benefits traders by improving liquidity but also contributes to the overall efficiency and credibility of the financial markets.