How do market makers earn profits?

The bid-ask price difference is the profit of market makers. Although the bid-ask spread seems small due to high trading volume, market makers generate substantial profits from the trades.

Suppose an IPO 1 trading lot size is 4000 shares and the market maker places buy order at Rs 25 and quotes a sell order at Rs 26.25, so the bid-ask spread of 1.25/share is the profit.

Buy value = 4000 shares * Rs 25 = Rs 100,000

Sell value = 4000 shares * Rs 26.25 = Rs 105,000

Total Profit to market maker = 1,05,000 – 1,00,000 = Rs 5,000

Profit % to sale = Rs 5,000 / 1,05,000*100 = 4.76%