Glossary term
Market Maker (Dealer)
A liquidity provider that quotes both bid and offer and takes the other side of customer option trades, then hedges the resulting risk in the underlying.
A market maker, or dealer, provides liquidity by continuously quoting a bid and offer and standing ready to take the other side of customer orders. When investors buy calls, dealers typically sell them and are left short the option — an exposure they neutralise by trading the underlying, buying or selling shares to stay delta-neutral. Because that hedge must be rebalanced as price, time and implied volatility change, dealer flow can either dampen or amplify market moves depending on whether the desk is long or short gamma.