How Is the Bid-Ask Spread the Implicit Cost of a Trade for the Market Maker?

The bid-ask spread is the primary source of profit for a market maker, making it their implicit cost of doing business. A market maker profits by simultaneously quoting both the bid and ask prices and executing trades at both prices.

They buy at the lower bid price and sell at the higher ask price. The difference, the spread, is their gross profit margin on the round trip trade.

This profit compensates them for the risk of holding inventory and providing continuous liquidity to the market.