Market Making Trading

What is Market Making Trading?

Market Making is a kind of high frequency trading where orders are continuously created in both sides of the orderbook, obtaining profit from the spread, the difference from the bid order (buy) and ask order (sell).

What are Market Makers?

In traditional financial markets, Market Makers play an important role by providing limit orders in an exchange orderbook, allowing traders to take positions at the desired price and quantity without a significant slippage.

Institutions and corporate business (family offices, hedge funds, OTC desks and banks) get premium grade services and advantages to facilitate liquidity, whereas individuals or small firms have high regulatory, technical and competitive barriers.

In digital markets most of the entry barriers are lowered or suppressed, as integration with exchanges is open to all market participants, and the lack of regulatory frame creates an opportunity for individuals to benefit from market making trading.

New opportunities in Digital Markets

Crypto market making is a fundamental part of the cryptocurrency ecosystem as it enables quick and efficient trading, competitive spreads and minimized slippage, mitigating price manipulation.

The goal is to provide liquidity by placing both bid and ask orders to ensure that every time a trader wants to buy or sell a token, the trade takes place quickly and smoothly, with minimal slippage.

Crypto market making and liquidity provision can be especially beneficial to emerging crypto coin projects as it can aid in getting listed on top exchanges. There are many innovative crypto projects that issue their own utility token or digital currency, yet most of them slowly fade out as a result of having illiquid markets.

The cost of Market Makers

Market Makers are a liquidity solution for assets traded in public markets (stocks, crypto, derivatives, commodities, etc...). In the Crypto space, bilateral contracts between token issuers and Market Makers are common although expensive. Small and mid-capitalization tokens usually struggle finding affordable liquidity solutions for their tokens in the CeFi environment, creating an opportunity for new liquidity related services.