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All About Market Makers

10.04.2020

Today’s concept in focus is market makers. You’ve been hearing us mention this topic quite frequently on our crypto trading podcast “This Week in Crypto”. Now it’s time to break this concept down – keep reading to know more about market makers!

 

What is a Market Maker?

This concept is not specific to crypto. Market maker – or MM, as it is abbreviated – can be an individual or a firm who actively quotes two-sided markets. MMs provide bids and offers (known as asks) along with the market size of each. Simply put – a market maker is someone who makes the market. Market maker’s core task is to make sure that when there is a buyer, they are on the sell side. When there is a seller, they are there to buy. They provide liquidity to the markets, make sure the orders can be fulfilled and profit from the difference in the bid ask-spread. 

If you are an auditory learner, make sure to check out the video of CoinMetro CEO Kevin Murcko explaining the topic below.

 

Market Makers in Crypto

As mentioned above, MM is not a crypto-exclusive term. In fact, there are very few market makers in crypto markets since the industry is still very young. So, how do market makers relate to the world of crypto trading, Bitcoin and Ethereum

Similarly to traditional markets, MMs provide liquidity and depth into crypto markets. The orders of market makers are added to the order book, therefore increasing the market depth and making sure that cryptocurrencies can be traded quickly and without losing their value.

Market makers are also tasked with keeping spreads in control. Market-maker spread is the difference between the price at which a market-maker is willing to buy an asset and the price at which it is willing to sell it. It projects the compensation that a market maker is getting in return for the risk that it is taking. Market making guarantees that spreads are stabilized and aligned to liquidity provided.

 

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