Every market is seen as attractive for trading when there is a balance of supply and demand and a high level of trading activity as fair prices. There is one crucial thing that makes trading platforms viable – liquidity. It’s all about high liquidity when assets are bought and sold easily. It’s all about high liquidity when prices are not allowed to jump drastically. It’s all about liquidity when traders conduct trades quickly and at a fair price, as close to the market price as possible.
In this article, we will talk about crypto exchange market making, namely who and how provides liquidity to trading platforms in the crypto sector.
Cryptocurrency Market Making
Market making implies adding liquidity (pouring capital) in trading for specific pairs on a crypto exchange. A crypto exchange market maker is a financial entity, high-frequency trader, or a specialized company, in both cases with great experience in trading and understanding of its tools.
Market maker services may include:
- Continuous placing bid (buy) and ask (sell) prices for crypto pairs, acting as a buyer or a seller for these assets in the case there is no suitable counterparty for an order that appears in an order book.
- Bid-ask spread management – market makers aim to reduce the spread between the highest buying price and the lowest selling price.
- Facilitating large trades – market makers are entities with sufficient capital, allowing for large transactions with no delays. It is crucial in trading crypto for institutions.
Who Takes Part in Market Making in Crypto
To some extent, every trader participating in the market is a market maker, for even retail traders pour trading volume into crypto platforms. However, like in traditional markets, the lion’s share of trading volume and thus liquidity falls on institutional trading activity. Most often, crypto exchanges partner with specialized market-making companies or financial organizations; rarely – with individual traders. Anyway, an institutional market maker platform will require a company to prove its creditworthiness, licenses, and credit ratings before making a partnership. Because these things directly affect the efficiency and reputation of a trading platform.
Final Word
Liquidity is the lifeblood of efficient markets, and crypto is no exception. Large institutional trading platforms require additional liquidity for clients to promptly fulfill their trading orders. This directly affects a platform’s reputation and attractiveness to other possible customers. Market makers play a central role in ensuring the needed liquidity level, acting as buyers and sellers of assets, balancing supply and demand, and creating a healthy environment for other traders.
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