What Is a Market Maker? The Key Role in Australian Markets (2025)

When you buy or sell shares on the ASX or trade currency on an exchange, you’re relying on a crucial player: the market maker. Often working behind the scenes, market makers ensure that Australia’s financial markets stay liquid, efficient, and fair. In 2025, with the pace of technology and regulatory shifts, understanding their role is more important than ever.

What Is a Market Maker?

A market maker is a firm or individual that continuously quotes both buy and sell prices for a financial instrument, such as shares or currency, hoping to profit from the bid-ask spread. In practical terms, they are always ready to buy from sellers and sell to buyers, ensuring there’s always a market for those who want to trade.

On the ASX, for example, major banks and trading firms act as market makers in popular stocks and Exchange Traded Funds (ETFs). In foreign exchange markets, global investment banks like Macquarie and ANZ play this role. Their commitment? To provide liquidity, even during volatile times.

• Continuous Pricing: Market makers post real-time buy (bid) and sell (ask) prices.

• Inventory Management: They hold inventories of shares or assets to meet demand.

• Risk Management: They use sophisticated algorithms to hedge against adverse price movements.

Why Market Makers Matter in 2025

The financial landscape is evolving rapidly in 2025. With more Australians investing via online brokers and ETFs, the need for reliable liquidity has never been higher. Market makers are central to this, but their job isn’t without scrutiny or change.

Recent regulatory updates by ASIC now require greater transparency in market-making activities, especially for ETFs and crypto products. These rules aim to curb potential conflicts of interest and ensure fair pricing for retail investors. For example, ETF market makers must publicly disclose their pricing models and spreads, making it easier for investors to compare costs.

Major market makers in Australia now use advanced AI-powered trading systems, able to respond to market shifts in milliseconds. This speed is vital when markets are volatile, like during the 2024-2025 global tech stock rally, where liquidity providers helped prevent wild price swings on the ASX and Chi-X exchanges.

• Greater transparency: ASIC’s 2025 rules require market makers to disclose more about how they set prices.

• Tech-driven trading: Algorithmic tools let market makers react instantly to news and volume changes.

• Investor protection: New rules limit how much market makers can profit from wide bid-ask spreads on certain retail-focused ETFs.

Real-World Examples: How Market Makers Impact Everyday Investors

Let’s say you want to buy shares in the BetaShares Australian Technology ETF (ASX: ATEC). Market makers ensure you can buy or sell units almost instantly, even when trading volumes are low. Without them, you might wait hours for a counterparty or pay a much higher price.

During the 2025 March sell-off, when global tech stocks dipped, market makers in ETFs like ATEC and the Vanguard Australian Shares Index ETF (VAS) kept spreads tight, allowing investors to exit or enter positions efficiently. If market makers had stepped back, price gaps could have widened, causing retail investors to lose out.

In the crypto space, licensed market makers have become essential on Australian-regulated exchanges, following the 2024 Digital Assets Market Regulation Bill. By maintaining liquidity in popular tokens, they’re helping protect everyday investors from wild price swings and manipulation.

The Pros and Cons of Market Makers

Market makers aren’t always beloved. While they create liquidity and smoother markets, critics point to the potential for conflicts of interest, especially if a market maker also trades for its own account. In response, 2025 rules demand clearer separation between market-making and proprietary trading desks.

For most Australians, the benefits outweigh the risks:

• Pro: Improved liquidity and better pricing, even in volatile markets.

• Pro: Lower trading costs thanks to tighter bid-ask spreads.

• Con: Potential for unfair pricing if market makers dominate thinly traded assets.

• Con: Algorithmic errors can sometimes amplify price moves, as seen in the 2022 “flash crash” event.

Looking Ahead: The Future of Market Making in Australia

With ongoing regulatory scrutiny and the rapid adoption of AI and machine learning, market making in Australia is set for continued evolution. ASIC’s 2025 push for more transparency is likely to boost investor confidence, especially as more retail traders enter the market via mobile platforms.

Whether you’re trading ETFs, shares, or crypto, understanding the invisible hand of the market maker is essential for making smart, confident investment decisions in 2025 and beyond.