How do market makers primarily earn profits in secondary capital markets?

Market makers primarily earn profits in secondary capital markets through the spread of their bid-ask quotes. The bid-ask spread is the difference between the price at which a market maker is willing to buy an asset (the bid price) and the price at which they are willing to sell it (the ask price).

When a market maker buys a security at the bid price and sells it at the higher ask price, they capture the spread as profit. This activity ensures liquidity in the market, as market makers are constantly buying and selling to facilitate trades for investors. Their role is critical because they help improve the efficiency of the market by offering to buy and sell securities at all times, thereby enabling other market participants to execute their trades more quickly and at more stable prices.

The other options do not accurately reflect the primary method of profit generation for market makers. High commissions on trades are typically associated with brokerage firms rather than market makers, while taking large positions and long-term investments are more aligned with strategies used by hedge funds or institutional investors rather than the market-making function focused on short-term liquidity and immediate transactions.