Market-making and taking is a trading model that is not new to many experienced crypto traders. Fundamentally, a marker taker trading was developed to incentivize those who post possible trades or rather the market makers while providing liquidity to enable those who accept the market makers’ trades or rather the market takers have a conviction that their placed orders must be satisfied. Essentially, market makers are normally willing to place trades at a particular price. On the other hand, market takers are those who have the wherewithal and are ready to trade.
Practically, the market makers would publish their trades while the market takers would search for the best published trades, see if they suit their demands, and if so, and accept them. In other words, market makers are the trade engine while the market takers are the fuel that enables the engine to operate. Therefore, the two are inextricably tied that neither can succeed without the input of the other. Normally, market makers take the form of big financial trading firms while market takers take the form of large investment firms.
Effective Maker/Taker Strategy Explained
In crypto trading, market makers always buy coins at bid prices and sell them to market takers at asking prices. The bid price is always lower than the asking price to enable the market makers to leverage the spread which is normally the gap between the bid price and the asking price. Today, most cryptocurrency exchanges employ this model because many markets register high frequency trading which may result in diminishing liquidity and eventually price distortion. The model, therefore, acts securely and prevents the market from being collapsed by the short-term traders who are always concerned with making huge short-term profits at the expense of the long-term traders.
Furthermore, this model charges maker-taker fees from the traders which are normally used to offset the unwelcome behavior of most short-term traders. The fees help stabilize the market against collapse. Since the taker fees are normally higher than the maker fee because takers are presumed to have the freedom of taking the price they want, this model normally discourages them from such practice with the intention of creating a well-balanced market for both makers and takers. Moreover, the maker-taker reserves some limited orders thereby enabling the price of the coin to steady.
Therefore, the effective maker/taker model is that which charges lower fees for the market makers while charging higher for the market takers. For the takers whose orders normally go through immediately, they have to pay a higher amount to sustain the market. The makers, on the other hand, normally pay lower fees because their orders can take several hours before they are met; plus, they only get charged when their orders are met or matched.
Most importantly, as a trader, it is advisable to post the command (become a maker) as that will place you in a safe position rather than buying from the already posted commands (being a taker). This is because there is always the spread which is normally to the benefit of the market maker. For instance, in some brokers, the difference is 0.15 percent which is a significant amount of money if it is a percentage of a bigger one. Therefore, as a trader, you will be well placed if you make a buy/sell order with the price placed to attract other traders (takers) to accept the deal. You will be charged a very small amount rather than being a taker.