How Does the Presence of “Market Makers” Influence the Bid-Ask Spread?

Market makers are essential financial institutions that continuously quote both a bid and an ask price for an option, providing liquidity. Their presence generally narrows the bid-ask spread.

By competing with each other to offer the best prices, they reduce the difference between the highest buy order and the lowest sell order. This competition makes it cheaper for other traders to execute orders, thereby increasing market efficiency and liquidity.