Cryptocurrency Market-Making

Understanding Cryptocurrency Market-Making

February 14, 2024

The cryptocurrency market is still young and incredibly volatile. Traders use this instability for efficient buying and selling digital assets and making money on their price swings. When you enter a crypto trading exchange and open an order to buy assets or sell them, it is usually fulfilled in a matter of minutes, depending on the platform you use and the current loading. Have you ever thought about who is there on the other side of the trade? And why should that someone want to buy (sell) your assets, while you’re confident it’s time to sell them (buy) at this moment in time?

If there is no “natural” buyer or seller in the market at this moment in time, market makers come to the scene. In this article, we will discuss who is a crypto exchange market maker, what tools they use, and what role they play.

What Is Market Making In Crypto?

Market makers are financial companies, banks, high-frequency traders, and other institutions and individuals that actively participate in trading by continuously placing buy and sell orders for crypto assets, ready to buy or sell at any given time. It creates a two-way market where traders can sell or buy crypto whenever they want.

Market makers aim to reduce the buy-sell price difference, which is called spread, and do as many trades as possible to collect those spreads as their earnings. Market makers are always ready to complete trading orders, regardless of the benefits and risks they take.

What Is A Crypto Market Making Strategy?

The main strategy for a market maker is the provision of liquidity to the market and facilitating trading on it. The most popular market-maker trading strategies include:

  • Algorithmic trading. Market makers often employ algorithmic trading strategies, using computer programs to automatically execute trades based on set rules. These algorithms analyze market conditions and execute trades faster and more efficiently than human traders.
  • Arbitrage. Market makers engage in arbitrage, aiming to minimize price variations across different markets. For instance, they may purchase crypto on a cheaper exchange and sell it on another where the price is higher, aligning prices between markets.
  • Hedging. Market makers use hedging strategies by taking a counter position in a related market to reduce possible losses. For instance, if a market maker holds a significant amount of specific crypto, they might engage in short-selling futures contracts for that crypto to protect against possible price declines.


Market makers are the key players in financial markets, ensuring liquidity and efficiency. They facilitate smooth transactions for traders, stabilize prices, and contribute to a healthier financial ecosystem by reducing bid-ask spreads and price volatility.

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