Who are Market Makers? — How they Influence the Financial Market.
The Cryptocurrency market is known to be volatile at certain moments and quite stalling at other times. What do you think is responsible for the making of an attractive trading environment? No trader enjoys trading when the market is ranging. Thus, a substantial amount of demand and supply for an asset in addition to high trading activities are paramount in making orders filled quickly. In this article, you will be learning about market makers and their influence in the crypto market.
Although big financial institutions provide high liquidity services, individual traders can as well provide commensurate volumes. Interestingly, all traders regardless of the amount of volume they inject into the market, are all market makers. However, the criteria that allow for individuals to participate in these services are stringent such that, only specialized institutions that offer market-making as their core services may be authorized to do so.
Centralized exchanges such as Binance provide the infrastructure to facilitate the trade of assets however, market makers provide the liquidity in crypto markets. They serve as an intermediary between the demand and supply of securities and assets.
Wondered why you can easily sell your assets anytime you desire? That is because the market makers provide the system which enables traders to sell assets on traditional low liquidity CEX. Market makers influence the market in several ways such as price continuity; markets that are characterized by slim bid-ask spread need enough liquidity and trade activities to allow for the continuity of a market. A bullish market usually is a good sign for crypto traders.
Market makers make profit through several channels; by providing services to crypto traders and exchanges, their commission is generated from the spread of the buying and selling price of assets. The average crypto trader buys ‘Low and Sell High’. It is not the case with market makers. The term ‘Spread’ denotes the difference between the price at which traders are selling and the slightly actual price. This bid-ask spread describes the gap between the buyer price and the seller price. Narrow spreads are caused by a high number of traders and market makers simultaneously in the market.
In our next lesson, we will dive fully into how market makers influence your trading. This article is designed to give you a foundation to enable your smooth sailing into who market makers are, and how they pull the strings of asset prices.
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