The Role Market Making Plays in Traditional and Crypto Markets

· Liquidity Is the Most Important Quality of a Market Asset

· Market Makers Play a Huge Role on Both the Traditional and the Crypto Markets

· There Are Profit Driven Market Makers and Designated Market Makers

The cryptocurrency market is continuously evolving and as such market makers play a pertinent role on the markets as a whole. This is primarily the cause due to the fact that traders are relying on metrics through CoinGecko and Coinmarketcap which display relevant numbers based on the liquidity and spread.

Given the fact that there are more than 1.600 cryptocurrencies in circulation, it is no wonder why this role must be fulfilled.

There are different types of market makers including:

· Profit Driven Market Makers — individuals or institutions that seek to profit from a market strategy and trade with their own capital.

· Designated Market Makers — institutions who are committed to improving market efficiency and trade with other types of capital.

Both of them are valuable parts of the crypto market and serve two different purposes.

What Do Market Makers Do?

Market making is one of the most indispensable sectors within the crypto industry. Market makers specifically are known as liquidity provider and play a fundamental role in asset markets by quoting buy and sell prices for assets on an exchange. Their role is to facilitate price discovery and liquid trading.

Traditional Markets

The role of traditional market makers is to charge a spread on the buy and sell price and transact on both sides of the market, and as such they establish quotes for the bid and ask prices or buy and sell prices. They typically invest largely and are either investment firms or financial institutions that can create liquidity within the market.

It is important to note that they have equities and regulatory barriers which contribute to the prevention of individuals or small businesses to play the market maker role. In high frequency trading many firms pay exchanges to place servers in close physical range to the exchange’s servers, which reduces latency dramatically and provides them with access to all and any data feeds.

Crypto Markets

Digital asset markets however have the added benefit of lowering the barriers of entry. Individual traders now have direct access to digital asset exchanges and this in turn enables them to provide price quotes and execute trades. The biggest benefit of digital asset exchanges is in the fact that they provide market data feeds without any charges.

Even though the barrier of entry is lower than on traditional markets, there are few market makers when it comes to digital assets and exchanges. This results in concentration within the liquidity.

Companies such as Efrontier make digital asset markets more efficient and accelerate the adoption of crypto finance that can contribute to the increase in liquidity.

The Bottom Line

Market makers create important benefits to exchanges and token projects as a whole. This enables liquid trading so that buyers and sellers can buy and sell their assets reasonably. Market makers have a main role in the way that they help maintain an order book with a tight bid spread