A market maker continuously posts both buy and sell orders in a specified volume with a limited spread. This allows an investor to execute a trade at any time during a trading session without waiting for a counterparty to appear.
Profit is generated from the spread between bid and ask prices, as well as from compensation from the exchange or issuer whose instrument liquidity is being maintained. In return, the participant accepts obligations regarding order volume and maximum spread width, as stipulated in the contract.
The presence of a market maker significantly improves the investor experience: the spread narrows and the probability of order execution at a predictable price increases. Its absence means the price depends on random coincidence of participants' interests.
Important limitation: a market maker ensures the ability to execute a trade but does not support the price. Its obligations concern the presence of quotes, not their level, so it does not protect an investor from a decline in the security's value.