Market Making in Crypto: The Roles of Makers and Takers

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Adequate supply and demand is the basis of every efficient market, whether it is traditional stocks or digital assets. The balance between supply and demand is not always achieved organically – very often, markets need help providing liquidity to be able to place orders quickly and at a fair price.

The greater the liquidity of the market, the more favorable the conditions for traders and the lower the risk. This is especially important when it comes to institutional crypto trading. Companies and financial firms that engage in this sector require much higher liquidity levels than retail traders. To provide this level and ensure a seamless and robust trading environment, when traders can easily transact large volumes, a crypto exchange creates a market maker trading platform. In this article, we will discuss the essence of marker creation and the role of the maker-taker in it.

Who is a market maker in crypto?

A maker is a trader who participates in a crypto market-making program and continuously places orders at a specific price and quantity on the order book, thus ensuring their readiness to buy or sell an asset at any time. Then, a maker waits for its order to be matched (by a taker), and when that happens, the maker earns from the difference in the buy-sell price. Makers are usually charged low transaction fees, as they contribute to the liquidity of the trading platform.

Benefits of Market Making:

  • The spread of bid-ask reduced;
  • increased market liquidity;
  • fair pricing;
  • stable demand and supply;
  • low transaction costs;
  • More attractive market.

Many market makers use algorithmic trading strategies to automate order placement and execution. This allows efficient and rapid adjustments to changing market conditions and completing hundreds or even thousands of transactions per day.

Taker’s role in crypto market creation?

While makers make the market and provide liquidity, buyers take liquidity. They don’t wait for orders to be matched – they use existing orders from the order book, which reduces liquidity. Takers are therefore the equivalent of makers, who are looking for orders to be executed immediately. Buyers usually pay higher fees than manufacturers. Such a fee policy encourages market participants to become makers and provide liquidity rather than filling existing orders.

conclusion

Cryptocurrency market making plays a central role in providing liquidity and smooth trading process on trading platforms. The functions of makers and takers are completely opposite: makers work at putting liquidity into the market, while buyers take that liquidity out of trading orders. Both roles are essential for a healthy business environment.