Before we dive into the concept of the market maker bot, let’s deal with the definitions. Who are market makers? And how can their strategies be implemented into crypto bots?
What is a market maker?
In traditional trading, market makers can be a broker or an intermediary individual, though normally they work on behalf of large institutions. To give you an example, Deutsche Bank Securities Inc., Goldman Sachs, Jane Street Capital are all market makers on the NYSE exchange.
That being said, traditional markets are mostly institutionalized, but the concept can still be used by individual traders to get ahead of other investors in inefficient crypto markets.
Here is how the market making strategy works both in crypto and traditional trading.
The more actively an asset is traded, the wider the spread can be and the more revenues market makers will return, since they control the prices and can always sell assets at a higher value than they bought them for.
But while in traditional trading, market making strategies don’t give a chance to individual traders with little capital, in crypto, being a person with little money, you still can profit on the spread by automating the same approach.
Automated market making strategies in crypto
Fundamentally, market making is a strategy where you place an order with a price that is different from the market price, in an attempt to profit from the spread. This is what crypto market maker bots do.
As you know, the specifics of the cryptocurrency market eliminate the maximum number of middlemen, which is why neither actual market makers nor brokers are necessary. Still, that doesn’t mean that the level of competition in crypto is low. Quite the contrary! People can play their trump cards to gain a competitive advantage.
In the fresh and young crypto niche, market making software can turn that into a trump card.
Market maker bot places orders outside of the spread in an attempt to buy and sell with a profit. It scans for markets with a bigger spread 24/7, giving a trader an advantage of time, volume, and price.
Basically the market making trading with bots stays the same with the one on traditional markets. The software is programmed to buy cheaper and sell at a higher price.
In order to understand how market maker bots work, you should realize that the market making strategy originates from traditional trading and has been utilized by traditional markets for decades.
On the other hand, in the crypto markets, free from multiple middlemen, the basic concepts are still relevant when it comes to making profits as an individual trader.
While using market maker bots, you can set prices and earn on the spread while using automated software, which will save you time and money and potentially increase your trading volume.