In the crypto industry, market making is a new concept unlike on the conventional financial markets. Although the basics are almost the same, digital assets offer unique opportunities. In this article, we are going to find out about market makers and the difference between conventional market makers and their crypto counterparts.
What is Market Making?
In simple terms, this term refers to the practice of quoting both a buy and a sell price for a financial instrument, commodity or cryptocurrency, hoping to make a profit on the bid-ask spread.
Doing this generates more liquidity for traders so that they can engage in buying and selling activities easier and with less slippage. Typically, traders keep an eye on the markets and grab an opportunity to trade right away. This means they are taking the buy and sell orders market makers put up.
Marketing Making is Equal to Liquidity Building
Usually, market makers’ role is to boost liquidity by helping facilitate trading. For instance, if you place a sell order with a market maker for, say, 200 shares of Samsung, the market maker will complete the order right away. This is what the term “making a market” refers to.
The Difference Between the Crypto Market and the Traditional Market
In the conventional financial markets, brokerage services and banks usually offer these market making services. In contrast, crypto market making services are usually provided by highly specialized quantitative trading firms. One example of such firm is Kairon Labs, a Belgian based crypto market making firm. Below are the primary differences between the conventional and the crypto market making service providers:
- In contrast with the traditional market that has opening and closing times, the cryptocurrency market is always awake and operates 24/7. Crypto market makers have to monitor their systems at all times. Even on holidays and on weekends.
- For crypto, the number of exchanges have increased due to the relative ease setting up on the regulatory side and because some of these first movers have become extremely profitable and valuable exchange businesses. On the other hand, there is only a relatively small number of stock exchanges in the world.
- Traditional stock exchanges boast deep liquidity. Selling millions of dollars of $TSLA can be done without impacting the market. Liquidity in the crypto market is a problem. Whales can often impact the price. This is why most crypto projects and exchanges have to hire a designated market maker to improve liquidity on their markets.
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New Cryptocurrencies
Since the demand for crypto and digital assets keeps on increasing, the demand for legitimate market making is on the rise as well. Therefore, we need market makers that help keep spreads as tight as possible and infuse liquidity at the same time. If a cryptocurrency project features good liquidity, It will have an easier time winning over the confidence of investors and traders. As a result, it helps boost the trading volume and projects can get listed on different and bigger exchanges.
Below are some of the services crypto market makers they offer:
- They help create demand for the new token
- They stabilize the volatility of the token
- They ensure that there are enough orders on both sides of the orderbook
- They maintain tight price spreads
- Help with listing on new exchanges
Long story short, this was the introduction to crypto market makers and their growing importance. If you want to know more, you can contact Kairon Labs for any crypto market making services you might be interested in.
