Market Maker — market animator

Definition

Market Maker (market animator) is a financial institution that commits to continuously posting buy and sell orders for a given financial instrument. It provides liquidity — thanks to them, you can always buy or sell shares.

Quick Answer

A market maker (market animator) is a financial institution that continuously posts buy and sell orders for a given instrument, providing liquidity so you can always trade. It buys at the bid and sells at the ask, and the spread between them is its main source of earnings — a 99.50/100.50 PLN quote yields about 1 PLN per share per round trip. Market makers narrow spreads, reduce volatility and lower transaction costs. On the GPW they include brokerage houses, investment banks and specialized trading firms, all required to keep spreads and order volumes within set limits.

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How does a market maker work?

A market maker simultaneously:

• Buys at the bid price (buy offer)
• Sells at the ask price (sell offer)

The difference between bid and ask is the spread — and that's the main source of the animator's earnings.

Example: Market maker quotes XYZ stock:

• Bid: 99.50 PLN (will buy from you)
• Ask: 100.50 PLN (will sell to you)
• Spread: 1.00 PLN

For each pair of transactions (buy + sell) they earn ~1 PLN per share.

Why are market makers needed?

Without market animators:

• No liquidity — you want to sell shares, but no one is buying
• Wide spreads — the difference between buy and sell price would be huge
• High volatility — without continuous quotes, prices jump chaotically

Market makers stabilize the market and lower transaction costs for all participants.

Market makers on GPW

On the Warsaw Stock Exchange, market animators include:

• Brokerage houses (e.g., DM BOŚ, Trigon)
• Investment banks
• Specialized trading firms

GPW requires animators to maintain spreads below a certain level and minimum order volumes.

Market maker vs regular trader

Controversies

• Conflict of interest — market maker sees client orders and can profit from this
• Payment for Order Flow (PFOF) — brokers like Robinhood sell client orders to market makers (e.g., Citadel). In the EU, PFOF is banned from 2026
• Flash crashes — when market makers withdraw in panic, liquidity disappears and prices fall avalanche-style

How Freenance can help

Freenance helps understand the transaction costs of your portfolio. You can see how much you pay on spreads and commissions, which is especially important with frequent trading of less liquid instruments.

👉 Monitor transaction costs with Freenance — freenance.io

Related Articles

• Earnings Per Share (EPS) — zysk na akcję
• Jak kupić pierwsze akcje — poradnik od zera krok po kroku

FAQ

What is a designated market maker?

A designated market maker (DMM) is a firm contracted by an exchange to maintain orderly trading in a specific instrument. They must continuously quote both bid and ask prices within defined spread and volume limits and step in to absorb temporary order imbalances.

What role do market makers play for ETFs?

For ETFs, market makers are typically authorized participants (APs) — they can create or redeem ETF shares directly with the fund issuer in exchange for the underlying basket. This arbitrage mechanism keeps ETF prices closely aligned with net asset value.

How do market makers earn money?

They primarily earn the bid-ask spread on round-trip trades and may also receive exchange rebates, fees from issuers for animation, or hedging gains. They bear inventory risk because the assets they hold can move against them between buy and sell.

Are market makers the same as high-frequency traders?

Not exactly. Many high-frequency traders act as electronic market makers, but not all HFT strategies are market making, and not all market makers operate at high frequency — some still rely on slower, manually supervised desks for less liquid instruments.

Does the EU still allow Payment for Order Flow?

The EU has moved to phase out Payment for Order Flow (PFOF) under MiFID II amendments, with the ban broadly taking effect in 2026. Member states retain limited transitional discretion, so investors should check current rules with their broker or regulator.