Institutional crypto exchanges are platforms oriented on large investors, such as financial and tech companies, that pour billions into crypto trading. To remain attractive and gain more customers, an institutional crypto platform must provide robust liquidity for the markets traded on it. Of course, every single trade contributes to the market liquidity in the share of trading volume they influx. However, same as in traditional markets, individual traders are not able to provide it at the necessary level. So crypto trading platforms look for professional market makers in crypto that would provide a stable and smooth capital flow in their markets. In this article, we will discuss the role of a market maker for a crypto exchange.
What Is a Market Maker in Crypto?
A market maker is an institution, bank, broker, or high-frequency trader that partners with a crypto exchange to provide liquidity to it and make a profit from high-intence and high-volume trading. Every market maker platform offers its own rules and conditions: they may offer different fee reductions and impose an investment threshold.
A market maker’s task is to place buy and sell orders and always be ready to fulfill other traders’ orders, making sure the market always remains liquid (there are always buyers and sellers for an asset).
What a market maker receives in return is the difference between the buying (bid) and selling (ask) prices they set themselves when placing orders in an order book. The task is to make this difference as small as possible (for it contributes to a fair, close-to-the-market price). Why does it make any sense for a market maker to narrow the bid-ask spread, you ask? The idea is to conduct million-worth trades daily, collecting spreads for a substantial amount. Plus, market makers receive fee reductions on trading platforms. Altogether, it motivates them to engage in active trading.
The Role of Cryptocurrency Market Makers
Briefly, the benefits of market makers:
- Lower transactions costs
- More stable prices
- Fair prices
- Quick trades execution
- Substantial trades execution
- Stable presence of buyers and sellers
- Attractive trading environment.
Altogether, market making in crypto helps increase a user base for a trading platform, thus, increasing its profit and efficiency, and also bringing reputational benefits.
Conclusion
Crypto market making is one of the best ways to raise liquidity for trading platforms and crypto assets. By partnering with specialized market-making companies, banks, and high-frequency traders, crypto exchanges receive smooth capital flow and stable asset pricing at the market level. These benefits are crucial for growing the user base and reputation of crypto exchanges.
