Most traders take liquidity — they cross the spread with a market order to get filled now. Market makers do the opposite: they provide liquidity by posting resting orders on both sides, aiming to profit from the spread and from the rebates exchanges pay for making markets. It is a repeatable, lower-variance approach, but it demands discipline and carries a distinct risk of its own.
What market making is
A market maker posts a resting buy order (a bid) a little below the current price and a resting sell order (an ask) a little above it, on the same market. When both fill, the maker has bought low and sold high, pocketing the difference. Because these are resting limit orders, they qualify as maker orders — adding liquidity rather than removing it.
Where the edge comes from
There are two sources. First, the spread: buying at the bid and selling at the ask captures the gap between them. Second, maker rebates — many exchanges charge makers less than takers, or pay a small rebate, so you are rewarded simply for providing liquidity. On any single trade the edge is small, but across many fills in a liquid market it compounds. The fee calculator shows how the maker-versus-taker difference affects your bottom line.
Inventory risk
The catch is inventory risk, sometimes called adverse selection. You do not control which of your orders fills first. If the market moves sharply, you may get filled on one side and left holding a position that is now underwater, with your other order unfilled. Managing this — keeping your net position small, adjusting quotes as the market moves, and not fighting a strong trend — is the real skill of market making, and why it is not a beginner strategy.
How to start
If you want to try it: stick to liquid markets with tight spreads and steady flow, post small two-sided orders, and watch your net inventory closely. Widen your quotes when the market is volatile and step back when a strong move is underway. Keep everything within your bankroll limits and treat it as an advanced technique built on top of solid risk management.
Related strategies
Build on this approach with the adjacent playbooks:
Frequently asked questions
What is market making in prediction markets?
It is posting resting buy and sell orders on both sides of a market to provide liquidity, aiming to profit from the spread between them and from any maker rebates the exchange pays. You act as the counterparty other traders trade against.
How do market makers make money?
In two ways: capturing the bid-ask spread by buying at the bid and selling at the ask, and earning lower fees or rebates that exchanges give makers for providing liquidity. Each edge is small but repeatable across many fills.
What is inventory risk?
It is the risk that you get filled on one side of your quotes and are left holding a position that moves against you before your other order fills. Managing net inventory and adjusting quotes as the market moves is the core challenge of market making.