A Maker Taker is a cryptocurrency exchange model that involves two distinct fees that any investor on the trade is subjected to; maker and taker fees. Market 'makers' are people who add liquidity to markets. They use the order books to place a limitation on the number of orders, which in turn averts cryptocurrency swings. From doing this (adding liquidity), market makers get rewarded with extremely lower fees as compared to other traders. On the other hand, a taker receives the liquidity. The concept is as easy as that.
Maker And Taker Fees
Taker fees apply when an investor in the cryptocurrency platform places an order that entirely fills immediately. Ideally, this means that you are 'taking' the price you wish by selling or buying some limit orders. Meanwhile, for orders that do not fill immediately (for example on limit orders), a trader gets rewarded by paying lower 'market maker' fees. So the main difference between the two fees is that market makers pay reduced 'maker' fees while takers pay a higher fee.
Through this model, a crypto platform is able to raise an incentive that is used to place orders on books.Therefore, many investors in the crypto currency platforms naturally want to be 'makers' because the maker taker structure model in itself is very rewarding to the makers.
Exchange Platforms and Maker Taker
It is worth noting that not all exchanges use the maker taker structure. But more popular ones like Kraken and GDAX use this model.
Tips on Maker Taker
While trying to understand this model, it is important for a potential investor to note the following:
- They are not inherently unique. They do not trigger any immediate sell or buy. They sit on the order books but do not fill immediately. A stop order activates a market order whenever a certain price is reached, while a market order is always immediate. On some exchange platforms, for example Bittrex, you can form a market order using a limit order by fixing it at a price that can fill immediately.
Why Crypto Currency Exchanges Adopt The Maker Taker Structure
For markets with lots of high-frequency trading(HFT), the probability of suffering from rapid trading activity that can distort prices while diminishing liquidity is very high. In case this happens, short term traders get an advantage over long term traders because they rake in huge profits.
Exchanges find it necessary to charge maker-taker fees to avert such undesirable behaviors. They charge a set premium for traders who wish to trade quickly. Ideally, you pay a fee if you want to take it 'right now'. This helps to steady the price of bitcoins. Thus, the maker taker model is a thing for the cryptocurrency exchanges.
On cryptocurrency exchanges that use the maker taker structure, market makers get lower fees for maker orders- ones that do not fill immediately while if your order fills immediately, an investor pays a 'taker' fee. That is entirely what a cryptocurrency exchange trader needs to know about the maker taker model.