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Crypto Market making

Nov 23, 2022
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Marketing Batman

Market makers are a necessary part of the economy. They do not make money on price movements, but create comfortable and loyal conditions for trading.

Crypto market maker is a necessary member of the cryptocurrency market

In this article, we will talk about who are market makers, what is the essence of their activities and how they really influence the crypto market.

What is crypto a market maker and how it works with Bitcoin and other cryptocurrencies

You may have heard of a crypto market maker before, but who is he and what does he do? Let's figure it out. A crypto market maker can be either an individual or, for example, an organization. A crypto market maker is engaged in the sale and purchase of cryptocurrencies through the exchange, thereby ensuring the liquidity of the currency used. The advantage for him is that he receives income due to the difference in the supply and demand spread. By skillfully operating the sale and purchase of cryptocurrencies, a crypto market maker can earn a steady income.

In order to successfully engage in crypto market making, you need to be a fairly experienced investor, have an analytical mindset, constantly develop, and, of course, be financially secure.

When launching a new crypto currency and introducing it to the market, many investors may refuse to invest in this coin, even though there will be few records of its purchase in the order book. It is in this case that the services of crypto market makers will be required, who will redeem the token and artificially fill the order book.

A market maker in the crypto market plays the role of an important counterparty. It finds buyers and sellers of a certain currency and allows you to conduct a currency purchase and sale transaction in a fraction of a second. According to its function, the market maker speeds up the movement of processes in the market, avoids delays that sometimes occur during the execution of orders.

The work of market makers makes it possible to significantly equalize the spread of the coin. This allows you to improve the statistics of trading a coin and makes it much more attractive for crypto investors.

Market makers profit by providing crypto exchanges with liquidity for trading pairs in the USDT market (Bitcoin/USDT, Ethereum/USDT, and so on), as well as acting as intermediaries for large OTC transactions.

Let's sum up how market makers play a role in the crypto market.

The role of the market maker in a transaction

What are the myths about the making of the cryptocurrency market

Some crypto traders are convinced that it is the market maker that influences the market quotes. But it is not so. The main task of a market maker is to create the mood of the market and motivate its participants to open orders in the right direction.

The market maker does not directly influence the quotes due to the fact that a deliberate influence on the price of an asset will be immediately noticed by the exchange, which may take restrictive measures against the market maker. In addition, artificial influence on seals can be considered as a trade manipulation, which is punishable up to the deprivation of a license to operate.

It is also important to understand that market makers cannot cooperate with each other. Moreover, they have no right to do so. In addition to the fact that the cooperation of market makers with each other is not profitable from a financial point of view, because they are competitors, they can be deprived of their license for such frauds.

There is also an assumption that the bulk of transactions in the crypto market are initiated by crypto market makers. This statement is easy to refute if you try to understand what exactly the market maker profits from. It profits from spreads and provides currency liquidity.

However, despite the control of the exchange over the activities of the crypto market maker, this bidder is necessary for the site. In return for maintaining liquidity in the market, the market maker is granted some privileges. For example, they reduce trading fees.

How to become a market maker in the crypto market

If you want to learn how to market in crypto, here is some information about it.To become a maker in the crypto market, you need to open limit orders. They are executed upon reaching the target price. But there is always a chance that there is already another order with the same value and then the user will still be a taker. To prevent this from happening, many exchanges have a special option for a passive order.

What are the crypto market making strategies

In their activities, market makers most often use two main work strategies. The first strategy involves the use of automatic trading systems, the second strategy involves the use of high-frequency trading.

  • The strategy of using automated trading systems is commonly referred to as Sell Side. When using it, automated trading systems are used in order to maintain optimal prices for assets and to profit from the spread.
  • High frequency trending is also called HFT. This trading strategy assumes that the turnover rate of capital is very high, the holding period of assets is also very short. In fact, a market maker using a high-frequency trading strategy conducts many transactions in a short period of time. This approach requires specialized robots and sufficiently powerful technical equipment.

So, we have considered the role of a crypto market maker in a cryptocurrency exchange. As you understand, this is a full participant in transactions, which allows you to make the market more stable, contributes to the development and strengthening of coins and speeds up the process of coin exchange.