Market maker
Market maker: A market maker is a trader or firm that keeps placing both buy and sell orders for an asset, so other people can trade at any time. Market makers earn the small gap between their buy and sell prices, called the spread, and in return they keep markets liquid.
How market makers earn the spread
A market maker might offer to buy bitcoin slightly below the current price and sell slightly above it. Each time both sides fill, it keeps the difference. Because it trades in high volume, small spreads add up. Its main risk is holding coins when the price moves sharply against it.
Why market makers matter for investors
Active market makers mean tighter spreads and less slippage, so you pay closer to the quoted price when you buy or sell. Thin markets with few market makers can have wide spreads and sudden price gaps, which is common with small, newly listed tokens.
Market maker vs automated market maker
On a centralised exchange, market makers post orders on an order book. On a decentralised exchange, an automated market maker (AMM) replaces them with a liquidity pool and a pricing formula, and liquidity providers earn the trading fees instead.
Frequently asked questions
What is the difference between a maker and a taker?
A maker adds an order to the order book that does not fill straight away. A taker fills an existing order. Exchanges often charge makers a lower fee because they add liquidity.
Why do spreads widen in a sell off?
Market makers face more risk when prices move fast, so they quote wider spreads or pull orders, which makes trading more expensive until things calm down.