Cryptocurrency trading is becoming more and more popular. As the crypto market grows, it attracts more participants – traders and investors, project developers, etc. One of the ways to engage in crypto trading is market making. 

Market makers may participate in a crypto market-making program on WhiteBIT or another large exchange. These are usually specialized companies or financial entities that partner with crypto exchanges and actively trade on them to supply liquidity. To become a market maker on a crypto exchange, entities usually undergo checks for compliance and must ensure they can provide sufficient trading volume.

Individual traders can also be market makers, but rather on decentralized exchanges or DeFi platforms, where to become a liquidity provider, they lock their assets in a liquidity pool and receive rewards in return.

Popular Market-Making Strategies

Market making involves placing buy and sell orders to ensure that there is always a market for the assets being traded, which helps to stabilize prices and reduce spreads. A market maker places limit orders and waits for other traders to execute them. The goal is to narrow the buy-sell price difference and make the market more attractive to other participants. The buy-sell difference, known as the spread, is where a market maker earns profit.

A market maker stands ready to buy or sell assets, even under unfavorable market conditions. This is why they adhere to strict risk management strategies, such as hedging and liquidity management. They need to ensure they have enough capital to fulfill orders without exposing themselves to excessive risk.

Profitable trading strategies for market makers include:

• Two-legged trading
• Market making without hedge
• Delta-neutral market making
• Grid trading.

Let’s consider grid trading. This strategy helps capitalize on volatile crypto markets. It involves placing buy and sell limit orders at regular intervals, both above and below a specific base price. Market makers execute sell orders when prices increase (making a profit) and buy orders when prices drop (accumulating more coins).

Cryptocurrency Market Trends

Automated trading and market making (AMM) is a trend in the crypto market that eliminates the need for human market makers by using algorithms and smart contracts to facilitate trading. Liquidity pools are created for pairs of cryptocurrencies. Users (liquidity providers) deposit both assets into the pool and receive liquidity tokens representing their pool share as a reward. AMMs use a math formula to determine asset prices, and the liquidity pool acts as the counterparty to all trades.

As the crypto market continues to evolve, we can expect to see more automated trading and market-making solutions using advanced algorithms and smart contracts.

Chainbits is not the source of this content. This article is provided for educational purposes only. Users should exercise caution with investing/dealing with cryptocurrencies and do thorough research prior.