Liquidity is the lifeblood, of whichever market we discuss, be it a traditional stock or crypto market. Without liquidity, there’s no hope for quick trade execution at fair prices. How do successful markets provide a stable level of liquidity where you can place an order to buy or sell assets and it is executed in a few minutes? In this article, we will talk about market makers and their role in the crypto market.
Who Can Be a Market Maker for Crypto?
A market maker is an entity or firm that facilitates trades between two parties and acts as a buyer or seller for crypto assets on a market maker trading platform. So any investor or trader that comes to a platform can easily conduct transactions without waiting for someone to buy or sell their assets.
Every day, market makers place buy and sell orders for specific crypto assets, creating a liquid market, where buyers and sellers smoothly cooperate.
Working with a market making platform, for example, WhiteBIT or Binance, market makers use high-frequency trading algorithms and strategies to automate their trading activity and profit from bid-ask spread (buy-sell price difference).
Here are the top companies providing market-making services in crypto:
- Efficient Frontier
- Skynet Trading
- Bluesky Capital
- Jump Crypto
The Role of Crypto Market Making
The role of a market maker for crypto should not be underestimated because, without these market players, it would be impossible to buy crypto easily and at a market price. Here are the benefits of market makers:
- High liquidity and seamless trading for all market participants. If an order is too big for one market maker to deal with, a few market makers unite their resources to execute a trade on a crypto exchange.
- Price discovery. Through their continuous quoting and trading activities, market makers help in the price discovery process. Their bids and asks contribute to establishing fair market prices, based on supply and demand.
- Short spreads. Market makers minimize the bid-ask spread, the difference between the highest buying price and the lowest selling price. This narrowing of spreads contributes to market efficiency and reduces trading costs for participants.
- Stability. By providing consistent liquidity, market makers contribute to the overall stability of the market, helping prevent excessive price volatility and ensuring that markets operate smoothly.
Market makers are essential players in the crypto market, contributing to price discovery based on demand and supply, absorbing any sharp market swings, and ensuring a smooth trading process for other participants.