[branchless]

Market making you provide a buy and a sell price and keep the spread for your "service".

Prop trading: you buy or sell based on a guess which way things will go and hold that position then exit at (you hope) a profit.

Normally the big book of banking says market makers "provide liquidity" which in my experience is enough to make most people in banking stop right there as providing liquidity is to them akin to passing bread to orphans.

[chris11]

Also, prop traders use the firms money to trade, they don't use client money. So the firm is responsible for the loss and gets the benefit of the profit.

[branchless]

Market making also uses firm money but the net position is (hopefully) flat. They trade against someone when their order matches on the exchange.

[bogomipz]

Thanks, question:

"as providing liquidity is to them akin to passing bread to orphans."

I'm not following your meaning there. Meaning?

Also, is every brokerage also a market maker?

[frandroid]

Brokerages pass on trades to market makers. They don't promise a price, they just tell you which price is available through market makers, and when you decide to go ahead with a trade, they go on the market, and you hope that the price market makers were advertising earlier is still what they're offering when you come through. Brokerages make a profit by passing on your order and taking a percentage of your total sale, not by making a profit on the spread.

[branchless]

I just find that whenever anyone wants to justify a total waste of resources like some people using microwaves to shave a micro off to nickle and dime the world it always comes down to some guff about liquidity to defend it.

The arms race where you never get to zero.

[nerdponx]

Providing liquidity is a service, so institutions expect to be paid for that service