To offer a healthy and efficient trading environment, the cryptocurrency market needs liquidity. When we talk about liquidity in the world of cryptocurrency, we’re referring to how easy it is to buy or sell a particular cryptocurrency without making a significant impact on its price. A high level of liquidity means that there are enough people buying and selling at any given moment. Transactions are made quickly and with minimal price slippage, which is the difference between the expected price of a trade and the actual price at which the trade is executed.
Proper liquidity ensures a healthy trading environment, deep order books, and tight spreads. It is vital for institutional services that require large order execution and low slippage. Low liquidity can lead to high volatility, wider spreads, and difficulty in executing orders, which can result in significant market impact costs.
This article explains how market-making in crypto facilitates liquidity and what other benefits it brings.
Who are Crypto Market Makers?
Market makers are financial entities or firms that understand how the crypto market works and engage in trading actively. Their task is to increase large trading volumes and continuously place buy and sell orders in the order book. Market makers act as middlemen between crypto buyers and sellers, ensuring they are ready to fulfill arising orders at any time.
Market makers may operate on regulated exchanges and receive fee discounts and many advantages and tools. For example, in the WhiteBIT market maker program, market markets pay the lowest fees for spot and futures trades, flexible APIs, VIP support, and many other advantages.
There are basically two types of crypto exchanges: those based on order books and AMM (automated market making). AMMs work on decentralized exchanges (DEX) and add liquidity through smart contracts. AMMs use automated systems to trade on DEXs.
Benefits of Crypto Market Making
Here are some key benefits of crypto market making:
- Improved liquidity
- Narrower bid-ask spreads
- Increased market efficiency
- Stabilized market conditions
- Profit opportunities for market makers (the bid-ask spread and arbitrage opportunities).
Automated crypto market-making implies using sophisticated algorithms in trading. It enables market makers to trade thousands of cryptocurrencies without manual intervention. It eliminates manual monitoring and execution of orders, making the system more efficient.
Market making in cryptocurrency is still in its early stages, but it’s steadily gaining more professionals. Today, more and more institutional investors are interested in the crypto market. This is mainly due to market makers making the market more liquid and attractive for new participants.
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