Market makers play a crucial role in the crypto ecosystem by offering liquidity, helping token issuers boost market cap, and generating significant organic trading volumes.
They largely help new crypto projects to grow awareness of their tokens, make them visible, and tradeable, and after all receive listing approval on reputable exchanges.
Talking about exchanges, market markets cooperate with them on mutually beneficial conditions – an exchange receives liquidity and its platform becomes more attractive for traders; a market maker receives profits from trading and low fees. Let’s see how a crypto exchange market maker works.
How Crypto Market Maker Acts on a Crypto Exchange
A market maker is a high-frequency trader or an entity that cooperates with a crypto exchange and places buy and sell prices for various digital assets.
Here is what crypto market makers do:
-
1) Initiating buy and sell orders. For example, let’s say the market maker quotes a buying price of $2,350 and a selling price of $2,375 for ETH.
-
2)Spread. The bid-ask spread, in this case, is $25. The market maker aims to keep this spread short to attract more market participants. It will help create a larger volume of transactions, and thus, earn more spreads.
-
3)Trade execution. Someone decides to buy ETH and places a market order. The market maker matches this market order with the price of $2,350 and conducts the trade instantly.
-
4) To maintain liquidity, the market maker continues to provide buy and sell orders. When another trader wants to sell ETH, the market maker might buy it at a price slightly lower than the current market price.
Market makers often participate in exchange programs, where they may receive incentives such as fee rebates and better trading conditions in return for providing liquidity to the market.
Choosing the Right Crypto Market Maker
Choosing the right market maker for a crypto exchange involves careful assessment of several factors:
- Reputation – look for market makers with a solid reputation and a proven track record in the crypto industry.
- Liquidity – assess the market maker’s ability to provide sufficient trading volumes for the specific assets your exchange supports.
- Adaptability – choose a market maker that uses advanced technology and algorithms.
- Compatibility – consider factors such as API integration, technical requirements, and specific features offered by the market maker.
- Security – verify that a market maker adheres to industry best practices to maintain a secure trading environment.
Consider the potential for a long-term partnership with the market maker in crypto. Assess their commitment to growing alongside your exchange and their willingness to adapt to future market developments.
