Makers and Takers in Crypto Trading
The cryptocurrency industry is controlled by forces of demand and supply, just like any other market. For any business to occur, there has to be a party that’s willing to buy an asset and another party that’s willing to sell the asset.
A maker is a person or entity that creates liquidity in the cryptocurrency market. They place the direction on when to sell or buy an asset at a given price on the ledger. Without the limit orders on the available assets, cryptocurrency prices would exhibit extremely high volatility as exchange platforms try to match the buy and sell market orders. In return, the makers are rewarded for being able to provide liquidity to the market by issuing limit orders.
A taker takes away liquidity from the market. They achieve this by placing orders to buy or sell the orders placed by makers on the books.
It is the maker and taker trading model that is used to show the difference between the trade orders that bring about liquidity and the trade orders that take away the created liquidity. The fees charged on the taker and maker trade orders are usually different.
Taker Orders: A trade order will only receive the taker fee if it gets an immediate match against an order that’s already listed on the order book, hence removing liquidity.
Maker Orders: It is important to point out that maker orders are not matched to already listed taker orders. Maker orders provide an orderbook to the market and then taker orders are matched to the listed maker orders. Our platform provides a 0% fee for marker orders.
Generally speaking, a Taker is a trader that uses Click Trade, also called Market Buy and/or Market Sell. A Taker matches the order that was set up by a Maker. Makers are those who continuously fill a position in a market anticipating a profit from the difference in bid-ask spread.
If you would like to try how things go in practice login into your Tokens.net account and click on Market Making tab.
Role of the maker-taker model in the crypto industry
It is essential to understand that high-frequency markets like the cryptocurrency market are prone to rapid changes that can alter the prices and diminish available market liquidity. The effect of such a scenario is that it will benefit short-term traders after vast and quick profits while hurting long-term traders.
Cryptocurrency exchange platforms therefore utilize maker fees to repel such behavior from the market. Additionally, the presence of limit orders can be used to stabilize the prices of cryptocurrencies.
Drawbacks of the maker and taker trading model
It is argued that the maker and taker fees incentivize broker traders to make the fees a priority instead of ensuring quality in executing a trade. Additionally, the maker and taker fees create room for distortion of cryptocurrency prices. The crypto assets are rendered inaccurate with rebates and discounts issued by some exchange platforms.
Some traders take advantage of rebates to exploit the market by buying and selling assets at a fixed price to take advantage of rebates. Market analysts also believe that maker and taker payments create false liquidity in the market by drawing traders that are only interested in refunds and not in substantially trading their cryptocurrencies.
The future of the maker and taker fees trading model is not guaranteed since both policymakers and financial institutions continue to demand regulatory actions be taken against the model. If the model is adequately scrutinized and the undesirable behaviors removed, it would cause a significant change in how the model can create and remove liquidity.
In a volatile market for demand to meet the supply, market makers maintain a spread on the assets that they enable to trade. In general, they avoid impersonal market forces and stick to their strategy, that is trading on either side of the spread, filling a position in the market. They are liquidity providers facilitating an efficient market for a reward. Tokens.net feature of Market Making is an example of an autonomous version of a traditional market maker.