Most people do not understand the concept of maker taker trading system in cryptocurrency trading. However, this article will provide a basic understanding of what the maker taker trading system is to such people.
Maker taker trading is actually two different types of trading systems – “maker” and “taker” – that a trader may be subjected to on a cryptocurrency exchange.
Actually, the term “maker” originated from the concept of “market maker” – a trader who makes liquidity, he or she provides liquidity to the crypto market. For better understanding, a maker is a trader that places limit orders on the order books. If the limit book is not placed on the order book by the maker, the value of cryptocurrencies would fluctuate wildly as the crypto exchange tries to match both the buy and sell market orders. Hence, the makers are sometimes compensated with lower fees in some crypto markets for providing liquidity to the cryptocurrency market in the form of buy/sell limit orders.
On the other hand, the “taker” takes liquidity i.e. a taker is a trader who places market orders to instantly buy/sell orders sitting on the books. As a result, a taker pays sometimes have to pay a higher fee than the maker in some crypto markets.
In a nutshell, a maker makes liquidity and a taker takes liquidity, that’s the concept of maker taker trading system. Now, it will be easier for anything else to follow.
How The Maker Taker Trading System Works?
In the maker taker trading system, the maker who provides liquidity to the crypto market “taker” receives reduced fees. These maker fees apply when a maker adds liquidity to the order book by either placing a limit sell above market price or a limit buy below market price. The maker fees are usually paid only when new incoming orders take over such orders.
The taker fee, on the flip side, apply when the taker removes liquidity from the book by placing a limit or market order that acts instantly against a limit order that is already on the book. Every other advanced order would trigger either market or limit orders to become maker or taker as defined above.
The Benefits of Maker Taker Trading System
The makers (traders who add liquidity) will enjoy a reduced maker fee from the trading system while the takers (traders who remove liquidity) will also enjoy a reduced fee. Although, takers pay more than makers.
What are Maker Fees and Taker Fees?
For the Bitcoin/Fiat pairs trading, makers can pay a fee as low as 0 percent to as high as 0.16 percent based on the amount traded. The taker fee is as low as 0.10 percent to as high as 0.26 percent based on the amount traded.
Not all cryptocurrency exchanges use the maker taker trading system but here is the reason why some crypto exchanges adopt the system:
• Having limit orders in reserve helps to stabilize the values of cryptocurrencies.
• Crypto exchanges can charge makers or taker certain fees to offset undesirable behaviour. In other words, i.e. to “take” or “make” right now, you pay for it.
• Crypto markets with a lot of high-frequency trading may suffer from rapid trading that distorts prices and reduces liquidity.
Conclusively, a taker is a trader that places a market or stop order that is immediately filled completely. And you have to pay the taker fee for this because you’re “taking” your desired price right now. A maker is a trader that places an order that is not filled immediately. And you would pay a reduced maker fee for this because you’re helping to “make” the market. Makers usually pay a lower fee than the takers. So, in most cases, it makes more sense for a trader to place limit orders that won’t be placed immediately but would be kept and matched with the market or stop order of another buyer or seller.