What Investors Expect From Market Makers

what investors expect from market makers

In this article of QuantVan we want to know what investors expect from Market Makers and how much they are important.

Expectation of Market Makers

in ‘what investors expect from Market Makers ‘ first discusses on Market making which is an activity that a trader simultaneously provides liquidity to both buyers and sellers in a financial market.

Since market makers profit from trading volumes, they will naturally be present in high volume products, such as bitcoin and top 10 coins.

Expectation of market makers

true market-maker supports the market throughout the trading day, come hell or high water. Whenever investors face an elevated period of event-driven volatility.

the speed and consistency with which market-makers create two-way liquid markets, by continuously quoting bid and offer prices, is often overlooked.

Why do we need Market Makers?

Market makers enable financial markets to become more efficient because they reduce price volatility and assist with fair price discovery. This is how it works:

For a given asset, the difference between the best bid and the best ask called the bid-ask spread. Markets that have low liquidity will generally have wide bid-ask spreads in their order books. The size of the spread has a direct influence on the volume traded in the market.

 

There are a few different business models that expected market makers to employ

provide liquidity, tighten the spread across trading pairs, and encourage order book volume. Ultimately, volume and exciting projects are what attract traders to an exchange. Unfortunately, many exchanges directly or indirectly endorse “fake volume” to entice projects and investors.

 

Retainer Model:

regarding to one article related , market makers will aim to operate at a flat P/L and focus instead on increasing market turnover by offering tighter bid-ask spreads.

 

rofit Loss (P/L) Model:

Some market makers will attempt to make money off the token’s bid-ask spread,

i.e., buying the token low and selling high. Increasing the spread increases income for the market maker, but reduces turnover (volume traded) for the given asset.

 

unethical market makers often use wash trading (the act of buying and selling at the same price) to give the impression of increased volumes. The “fake volume” created intended to falsely entice new investors by raising the token’s position in volume rankings.

 

Invest In The Future

Large and successful market makers bank on their experience and technical expertise apart from their large financial backing. Such institutions have realistic expectations and proper risk control in place.

Thus, market makers make it easy for anyone to buy or sell an asset at any amount, any time less the waste of time, effort and money.

So if cryptocurrencies are the future of money and markets, trusted market makers can be your guide to that future.

 

Also you can read our other articles about “Market Making” in QuantVan blog.