Crypto Updates

How Effective Market Makers Should Work – Where To Place Orders and How To Manage the Order Book

How Effective Market Makers Should Work – Where To Place Orders and How To Manage the Order Book

Market making is a fundamental feature of financial markets, essential for providing liquidity and performing trading. Market makers commit to buying and selling assets at all times, thus forming trading volumes and markets for others to trade efficiently.

Camille Meulien, CEO of Yellow Capital, said,

“Effective market making in the crypto space requires robust risk management, strategic order placement, constant market monitoring and adaptability. By all the requirements, market makers can enhance their performance, provide better liquidity and contribute to more efficient and stable markets.”

In this article, together with Yellow Capital, we will closely examine the market makers in the crypto and how they should work to be effective.

Why are trading volumes important

Historically, in crypto markets, high trading volumes indicate an active, healthy market with enough liquidity for entering and exiting.

Volumes help in price discovery, indicate confidence in the marketplace and reduce the chances of sharp price variations.

Market makers enable volumes by continually placing both buy and sell orders, aiming to keep the trading operations alive.

What is crypto market making

Market making is the process of strategically providing liquidity for different crypto trading pairs by constantly buying and selling specific assets and creating a healthy trading environment for the organic growth of new traders and investors.

Liquidity is the lifeblood of the crypto market. Without liquidity, markets are empty and inactive.

Being liquid (having liquidity) means that an asset can easily be bought or sold in the market and can be disposed of without experiencing much price change.

MMs (market makers) increase liquidity by managing the order book, at the same time increasing stability in prices and confidence among traders.

Initially, the idea of market making business was to benefit from the bid-ask spread, which is the difference between the buying price (bid) and the selling price (ask).

Evolution of market making

Originally, market makers’ primary profit source was the spread, but with time, crypto market makers switched their attention to different services.

They started providing market making as a service, acting as a middleman for market participants, investing in early stages and assisting crypto projects with token launches and even incubation.

It is safe to say that market makers have become among the most influential and important crypto…

Click Here to Read the Full Original Article at The Daily Hodl…