Cryptocurrency Market Making: What is It and Where is It Used?

Liquidity is the main characteristic of markets, especially in the crypto market, which is so volatile. A liquid asset can be easily bought and sold at a fair price. Low-liquidity tokens often remain unknown. What makes tokens liquid? This article explains market making: what it is and where it is used.

Who is a Market Maker in Crypto?

A crypto market maker is a specialized company or a financial entity, a high-frequency trader, or (rarely) an individual trader that cooperates with a crypto exchange to participate in its market-making program like https://whitebit.com/market-making-program. The goal is to supply liquidity to a crypto exchange platform and earn from the bid-ask spread.

A crypto market-making strategy is continuously placing buy and sell orders on crypto assets, standing ready to fulfill any emerging order that matches. The difference between the highest bid (buy) and lowest ask (sell) price. The shorter the spread, the more favorable the trading environment for other market participants is. Thus, the more trades a market maker fulfills, the more they earn. Conversely, the bigger the spread, the less attractive it is to other traders, so they will look for other markets with more favorable conditions for trading.

Market makers may conduct thousands of trades daily (using automated programs) and earn significant amounts from spreads. In such a way, they fill the market with trading volume, make the market active, attract new participants, and maintain a good reputation for a crypto exchange. In return, they often receive fee discounts or even zero fees.

When Should You Use a Crypto Market Maker?

Here are the cases where you cannot do without market makers:

• Crypto exchanges that aim to serve institutional investors and traders need cryptocurrency market making services to ensure enough liquidity for large-volume trades. Liquidity is crucial to prevent price swings and slippage. When a market maker is reliable, it tends to attract more institutional investors by providing sufficient liquidity.
• Projects that launch new tokens cooperate with market makers. They help create an organic trading volume, balance supply and demand, form price, and protect against price manipulations. Since investing in new tokens is risky, investors have concerns about easy funds withdrawals. Market markets make sure that investors money can be easily withdrawn if something goes wrong and they want to sell tokens.

Market makers play a central role in the cryptocurrency market by providing liquidity and maintaining a stable trading environment. Their services are essential for exchanges, institutional investors, and projects launching new tokens, making them a valuable asset in the crypto ecosystem.