Pull up a quote on any stock and you’ll see two prices sitting side by side. One is what someone’s currently willing to pay for it. The other is what someone’s currently willing to sell it for. They’re never the same number, and on a small cap that trades a few thousand shares a day, that gap can be wide enough to matter.

The person standing between those two prices, quoting both sides, holding inventory, taking the other side of trades when nobody else will, is called a market maker. Understanding what they actually do changes how you read a quote, and how much a trade actually costs you before the stock even moves.

What a Market Maker Actually Does

A market maker is a firm that continuously quotes both a buy price and a sell price for a security and stands ready to trade at those prices. The gap between them is the bid-ask spread, and it’s how the market maker gets paid for the service, buy low from one trader, sell slightly higher to the next, repeat continuously all day.

That service matters more than it sounds. Without someone willing to quote both sides at all times, a buyer and a seller might simply never show up in the market at the same moment. A market maker closes that gap, providing what’s called continuous two-sided liquidity, so a trade can happen right now instead of whenever a matching order happens to appear.

How This Works Differently Across the Three Exchanges

The TSX runs a formal secondary market maker program. TMX Group rolled this out in a phased launch completed in September 2018, assigning a secondary market maker to corporate securities specifically to narrow spreads, and the early results showed a real, measurable tightening of spreads on securities that got a second market maker compared to those with only one.

The CSE runs its own dedicated program. A CSE market maker commits to specific, measurable goals, a target spread, a minimum amount of time quoting at the best bid and offer each day, and a guaranteed minimum fill facility for smaller retail orders. The exchange actively tracks performance against those commitments, spread, quote presence, and liquidity provided, and market makers who don’t hold up their end can lose the assignment.

The TSXV works differently again. It doesn’t automatically assign a designated market maker to every listed security the way a larger exchange might. Instead, a company itself can hire a market maker to support trading in its own stock. That’s a meaningful distinction. On the TSXV specifically, whether a small cap has active market making support at all can depend on whether the company decided to pay for it.

Why the Spread Widens on Thin Volume

A market maker takes on real risk holding inventory in a stock. If they buy shares from one seller and the next buyer doesn’t show up for hours, or days, they’re sitting on a position that could move against them before they can offload it. The wider a spread, the more compensation the market maker is building in for that risk.

A heavily traded stock has buyers and sellers arriving constantly, so the market maker’s inventory risk is low and the spread stays tight, often a penny or two. A thinly traded small cap might see one trade an hour. The market maker holding that inventory is exposed for much longer, and the spread widens to compensate, sometimes to several percent of the share price on the smallest, least liquid names.

That spread is a real cost to you as a trader, separate from any commission your broker charges. Buy at the ask and sell at the bid on the same day with no price movement at all, and the spread alone has already cost you money. On a liquid large cap that cost might be a fraction of a percent. On a thinly traded small cap it can be a meaningful chunk of your position before the stock has moved an inch.

Checking the Spread Before You Trade

Most trading platforms show the current bid and ask right next to the last traded price. Before placing an order on a small cap, look at both numbers and calculate the percentage gap between them. A two or three percent spread on a stock that trades a few thousand shares a day is common and not unusual for that level of liquidity. A spread in the double digits on a stock with almost no daily volume is a sign that entering or exiting a position could cost far more than the quoted price suggests.

This is also where order type matters. A market order fills immediately at whatever price is available, which on a wide spread can mean paying well above the last traded price or selling well below it. That specific topic, and how to use limit orders to protect yourself from it, gets its own full treatment in the next article in this series.

Key Takeaways

• A market maker quotes both a buy and sell price continuously and profits from the gap between them, the bid-ask spread.
• The TSX and CSE both run formal market maker programs with tracked performance goals. The TSXV relies more on issuers choosing to hire their own market maker.
• Spreads widen on thinly traded stocks because the market maker carries more inventory risk when trades are infrequent.
• The spread is a real, separate cost from commissions, check it before trading any small cap, particularly one with low daily volume.

Related Reading

• Why Market Orders Are Dangerous on Thin Volume (and How to Use Limit Orders)
• Position Sizing When a Stock Trades $10K a Day
• TSX vs. TSXV vs. CSE: Where Small-Cap Stocks Actually Trade
• Why Liquidity Risk Matters More Than Volatility for Small Caps

Sources

• StoneX: Market Maker, What It Is, Importance, Benefits and Examples
• National Bank Direct Brokerage: Meet the Market Makers
• CSE: Market Maker Program
• Warrior Trading: Market Maker Explained for Beginners

Editorial Disclosure

This article is based on publicly available information including CSE issuer services publications, TMX Group and National Bank Direct Brokerage educational materials, and independent reference sources on market making mechanics. It does not cover, endorse, or recommend any individual company, stock, or security. aktiego.com has not received compensation from any exchange, listed company, IR firm, or third party in connection with this article. No staff member or principal of aktiego.com holds a position influencing this content. Market maker program structures and performance criteria referenced in this article reflect the sources cited at the time of writing and may change; readers should verify current program details directly with the relevant exchange. This article is provided for informational and educational purposes only. aktiego.com is not a registered investment advisor. Nothing in this article constitutes financial, investment, legal, or professional advice. Investing in small-cap and early-stage companies carries significant risk, including potential total loss of capital. Readers are encouraged to conduct their own due diligence and consult a qualified financial advisor before making any investment decisions. For more information, please see our full DISCLAIMER.