How Commercial Banks Profit as Market Makers: Spread vs Commission Models

Spread Profit Model

Many commercial bank apps do not charge commissions but instead add a markup to prices, earning directly on each trade.

For example, consider a product A with the following bank quotes:

Bid (bank buy / customer sell): 250.00

Ask (bank sell / customer buy): 252.40

The bank acts as the counterparty rather than matching users, then trades in the financial market to ultimately profit. This heavily tests the bank's own trading expertise.

In some businesses, to attract customers, banks may charge only on the sell side and not on the buy side.

Commission Profit Model

In the commission model, a fee is charged per trade. The market maker's quote matches the financial market quote (e.g., 251.20), but each customer trade incurs a commission, similar to how securities brokers charge fees on stock trades.

Conclusion

Market makers' profit logic essentially comes down to these two models. Profitability critically tests the market maker's position management, quote management, and hedging trading skills.

This is also why many commercial banks' market-making businesses cannot expand indefinitely; they must consider the market maker's own management capabilities.