Why Do Market Makers Primarily Use Limit Orders Rather than Market Orders?

Market makers profit from the bid-ask spread by simultaneously placing limit buy (bid) and limit sell (ask) orders. By using limit orders, they provide liquidity and are often eligible for 'maker' rebates, which reduces their trading costs.

Crucially, limit orders ensure they control the price at which they execute, protecting them from the immediate negative slippage and price impact that a market order would incur, which is vital for their low-margin business model.