WHAT IS CRYPTO MARKET MAKING?
Market making in the context of crypto refers to establishing a market on an exchange for a specific cryptocurrency trading pair. This is done by simultaneously putting buy and sell orders at a range of prices so other traders can enter and exit trades without significant inefficiency.
HOW DOES CRYPTO MARKET MAKING WORK?
These market-making firms use sophisticated trading algorithms and automated strategies to ensure liquidity in the crypto market. Here’s how the process usually goes:
PLACING ORDERS ON BOTH SIDES
Market makers will always place orders for buy and sell periodically on a trading pair. For instance, if a market maker is providing liquidity for BTC and USDT, they could put:
• A buy order at 1 BTC for $49,950
• An order to sell 1 BTC for $50,050
This keeps an order book stable, allowing traders to trade if needed.
NARROWING THE BID-ASK SPREAD
The bid-ask spread is the difference between the highest bid to buy and the lowest ask to sell. Market makers always try to keep this spread as tight as possible, lowering traders’ costs and making the market more efficient.
UTILIZING TRADING ALGORITHMS
Crypto market-making services use algorithms that analyze market trends, order book depth, and trading volume in real-time. These algorithms automatically recalibrate buy and sell orders to provide liquidity and dampen price fluctuations.
HEDGING RISK
Market makers hedge their risks. If they provide liquidity to an illiquid asset, they may use derivatives or other trading strategies to protect against sudden price movements.
OF CRYPTO MARKET MAKING THE IMPORTANCE
It enables efficient price discovery, liquidity provisioning, and resilient markets. This could lead to inefficient, extremely volatile markets without the market makers. That’s why crypto market-making firms are essential:
INCREASED LIQUIDITY
Liquidity is how easily an asset can be purchased or sold with the least detrimental effect on its price.
Market makers always keep buyers and sellers in the market, avoiding large gaps between prices and sudden price fluctuations.
REDUCED PRICE VOLATILITY
Market makers place continuous orders that help maintain the level of movement in price. This is especially advantageous for newer or low-volume cryptocurrencies, where one big trade could lead to extreme price changes.
THANK YOU
Crypto market-making services are an important part of the digital asset ecosystem, ensuring efficient, stable, and liquid markets. This is where crypto market-making firms such as Cequire come in, providing liquidity within the crypto markets by lowering price movements, decreasing spreads, and improving the overall functioning of exchanges.
