What Is the Role of a ‘Market Maker’ in Reducing Slippage on an Exchange?

A market maker provides liquidity by simultaneously placing both limit buy (bid) and limit sell (ask) orders on the order book. By continuously quoting a tight bid-ask spread, they absorb small imbalances and ensure there is always available depth.

This continuous presence of liquidity reduces the likelihood that a market order will have to execute against orders far from the best price, thereby minimizing slippage.