How does a crypto market maker make money?
Institutional crypto platforms offer a range of opportunities for investors, including market maker trading. Find out how they make money.
Cryptocurrency trading is an activity where a trader places buy and sell orders in order to maintain a sufficient level of liquidity on a trading platform. In recent years, the cryptocurrency industry has received a huge boost as more and more institutions have begin to embrace it.
Financial companies, investment banks, technological corporations, and payment processors were the first to tap into the crypto market. Injecting large capital into the crypto sector, they managed to spur the development and growth of infrastructure – making the crypto market more mature and trusted.
Institutional crypto platforms offer a range of opportunities for investors, including market maker trading.
What is market making in cryptocurrency?
There’s no successful trading without liquidity. When we place orders in an order book, there is always someone facilitating our trade’s fulfillment. And often, it is a market maker. Cryptocurrency market making is an activity where a trader places buy and sell orders in order to maintain a sufficient level of liquidity on a trading platform.
Who can be a market maker? There should be someone with sufficient capital and a proven trust level, like financial or investment companies banks, etc., that act on behalf of their clients. Before becoming market makers, these entities must ensure they comply with regulations and are ready to act according to the rules of a trading platform.
How to make money through crypto exchange market making
Market maker services imply providing liquidity and making sure there is always demand and supply for a specific trading pair. In return, these market participants receive the following benefits:
- The difference between buy and sell prices the market maker places on a trading platform is called “bid-ask spread”, and that’s what builds their earning. Example: ATOM is traded at $8.62; the bid price might be $8.60, and the ask price may be $8.70. The spread is $0.10.
- Depending on a crypto market-making program, there can also be earnings from fees charged from every trade. The larger the trading volume, the higher a market maker’s profit. On the flip side, other customers and investors are interested in high liquidity, so a part of their fees goes to a market maker.
How do market makers cope with price volatility? Indeed, their work is risky, but in most cases, they have “deep pockets”, so they are able to withstand market volatility and hold assets long-term.
The crypto market maker’s role is vital
A crypto market maker’s role is vital for a healthy environment in a crypto market. Without their participation, it would be much more difficult and expensive for investors and traders to conduct trades. It explains why large institutional trading platforms hunt for reliable market makers. It’s a mutually beneficial service – on the one hand, a platform receives liquidity and stability; on the other, a market maker makes a profit.