The Role of Market Makers in Crypto Trading (02)
Market makers play a significant role in the crypto industry. In my last post I have discussed the basic issues of this concept. Today I shall try to discuss the mechanism of their working in this sector. Market makers aim to profit from the bid-ask spread. This spread indicates the difference between the highest price a buyer is willing to pay for an asset (bid) and the lowest price a seller is willing to accept (ask). By placing orders on both sides of the order book, market makers can capitalize on these small price differences over time.
The difference is minimal due to the market makers which ensure efficiency in the market. For example, consider a market maker that is offering to sell Bitcoin for $70,000 and is willing to buy it for $69,990. If a buyer purchases Bitcoin from the market maker at $70,000 and another seller sells Bitcoin to the market maker at $69,990, the market maker makes a $10 profit on the transaction. While each transaction might yield a small profit, the cumulative effect of thousands of trades per day can result in significant earnings.
Market makers in the crypto space operate similarly to those in traditional markets, but with some key differences due to the unique characteristics of crypto assets. Since cryptos can be highly volatile, market makers often employ advanced algorithms and trading bots to adjust their positions and prices in real-time. They help provide liquidity across different exchanges. This way they confirm that traders can enter and exit positions quickly without significant slippage or price impact. That is the main role of the market maker in the crypto sector.
~ Regards,
VEIGO (Community Mod)
Upvoted! Thank you for supporting witness @jswit.
Market maker is an important or I would say crucial component in the market especially for the traders because this is how they can buy or sell coins at the price they want if they become market maker in the price.