What strategy do market makers use in relation to their inventory of securities?

Market makers play a crucial role in ensuring liquidity in financial markets by continuously buying and selling securities. Their primary strategy involves maintaining a balanced inventory of securities, allowing them to facilitate transactions for other market participants. By adjusting their positions through buying and selling, market makers can respond to changes in supply and demand.

This balancing act is essential for providing liquidity, which means that the market can accommodate large transactions without significant price changes. When there is more buying interest, a market maker might sell from their inventory, and when there are more sellers, they may purchase securities to maintain the equilibrium. This strategy helps stabilize prices and ensures that investors can enter and exit positions efficiently.

Holding onto all securities indefinitely would hinder their ability to serve the market effectively. Enhancing market predictions is not the primary function of a market maker; rather, they react to market conditions. While minimizing exposure can be a strategy in some contexts, it does not specifically describe the market maker's core function of maintaining liquidity through a balanced inventory. Thus, the choice that best reflects the strategy employed by market makers is to maintain a balance of buying and selling to provide liquidity.