Over the last decade, the cryptocurrency market has been growing, and the reason is the influx of large institutional investors. Institutional trading implies buying and selling digital assets by financial entities, funds, tech companies, and corporations. To endure large transactions, trading platforms require sufficient liquidity, and that is what differentiates institutional platforms from trading exchanges for retail traders.
An example of institutional-grade exchange is Binance, WhiteBIT, Kraken, and many other big names in the industry. One of the popular options for institutions on these platforms is crypto market making services, and that’s what we’re going to discuss in this article.
Who is A Market Maker in Crypto?
Market makers in the cryptocurrency space are entities or individuals that play a significant role in facilitating trading activities by providing liquidity to the market. That may be high-frequency traders and institutional investors, or even retail traders (rarely).
Market makers “make a market” by continuously quoting buy and sell prices for digital assets, creating a two-sided market for participants. While market makers influence liquidity, they do not control the overall cryptocurrency market. They just make sure there is someone to buy or sell crypto in the needed amount for other traders and investors.
Key points about market makers in crypto:
- Continuous quoting – they continuously quote both bid (buy) and ask (sell) prices for cryptos. The spread between these prices represents their profit margin and contributes to market liquidity.
- Facilitating trades – crypto market-making services include enhancing market liquidity by being willing to buy or sell digital assets at any given time.
- Reducing volatility – the presence of market makers helps reduce price volatility by absorbing sudden buy or sell orders.
- Part of a larger ecosystem – market makers are one component of the broader cryptocurrency ecosystem, which includes miners, traders, investors, developers, and regulators.
Market-makers use the following strategies: grid trading, market making without hedge, cross-exchange liquidity mirroring, and delta-neutral crypto market maker strategy.
Conclusion
Cryptocurrency market-making contributes to the “healthy” environment on the market by providing liquidity and minimizing price volatility. Their work is crucial for large trading platforms, as without sufficient liquidity, they would lose their institutional clients.