Market Makers vs. Market Takers

What Is a Market Maker vs. Market Taker in Crypto?

The operations of market makers and takers are accounted for in an order book.

There needs to be enough liquidity in the market for buy and sell orders to be filled, and this is what market makers and takers do. Without liquidity, you wouldn't have enough available assets to meet the trade requirements of market participants.

The Market Maker

They create the buy or sell order for execution

A firm or individual that buys or sells assets for their own account

They make the order books

They need to provide liquidity to the market

The Market Taker

They are the party that immediately buys or fills that order

Someone who completes a market order by accepting it

They buy an asset at the asking price

How Do Market Makers Trade?

⁠

Market makers make their profits by charging a spread on the buy and sell price of an asset. The buy-sell spread represents the estimated transaction costs.

The takers pay the asking price for an asset, which is usually higher than the market price.

Then, the trade is executed at a bid price.

The difference between the market price and the bid-ask price is the spread, which is the profit that the market maker takes in.

Automated Market Maker(AMM)

In the AMM protocol, you do not need another trader to make a trade.

Instead, you can trade with a smart contract.

Anyone can be a liquidity provider

The liquidity provider deposit a pre-determined amount of Ether & Tether to the ETH/USDT liquidity pool.

In return for providing liquidity to the protocol, the liquidity providers can earn fees from trades in their pool.

Bibliography:

⁠

https://komodoplatform.com/en/academy/market-makers-vs-market-takers/⁠

⁠

https://www.cnbctv18.com/cryptocurrency/automated-market-maker-what-is-amm-and-what-is-its-role-in-defi-12037162.htm⁠

⁠

Want to print your doc?
This is not the way.

Try clicking the ⋯ next to your doc name or using a keyboard shortcut (

CtrlP

) instead.