Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

The main function of a market maker is to facilitate the trading of a security and provide liquidity. Market makers are entities, usually broker-dealers, that commit to buying and selling specific securities at publicly quoted prices. Their presence in the market helps to ensure that there are always active buyers and sellers for securities, which is essential for maintaining orderly and efficient trading.

By providing liquidity, market makers help to narrow the bid-ask spread, making it easier for investors to buy and sell without causing significant price fluctuations. This liquidity is particularly important in less actively traded securities, where the lack of participants can lead to larger price changes.

In contrast, while trading in a customer's account at discretion or acting as an agent to buy and sell are relevant to the broader roles within the financial services industry, they do not capture the essence of what a market maker specifically does. Additionally, the stipulation that a market maker can only be an institution doing proprietary trading is misleading. Market makers can be both institutions and individual entities and do not solely engage in proprietary trading; their primary role is enhancing market liquidity through their activities.