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The financial markets have evolved significantly over the past few years. In new-age markets, trades can be placed and fulfilled faster than ever. However, for the seamless execution of a buy or sell trade, there is a need for a seller or buyer to be on the other side. This is where market makers kick in. As in thin markets, there is less number of buyers and sellers, therefore, market makers become the counterparties, offering liquidity for the digital assets, enabling successful transactions.
As the name suggests, an individual, institution, or software solution performing the task of market making in the cryptocurrency market is known as a Crypto market maker. In this blog, we cover the technological aspect of cryptocurrency market making wherein a software solution ensures adequate liquidity and well-organized trading on financial markets.
Market making is an activity that aims to make markets favorable for trading by maintaining substantial supply and demand for respective assets. Market makers place to buy and sell limit orders on crypto trading platforms with the hope of earning profits on the spread.
Market Making Maintain Fair Pricing Of An Asset:
Market makers reduce price volatility and therefore lead to fair prices of assets. In low liquidity markets, the difference between the best bid and best ask (known as bid-ask spread) is high. To shorten the bid-ask spread, market makers jump in to offer liquidity in the markets.
Lower Impact Costs With Market Making:
Crypto market makers are autonomous entities integrated with exchange APIs that efficiently provide real-time liquidity to markets. They effortlessly make the order books thick. Since algorithmic crypto market making solutions provide fair execution prices for huge-size orders, impact costs, and volatility are also minimized.
As mentioned earlier, crypto market makers can be individuals, institutions, or software solutions. The following points would sum up the overall positive influence of the crypto market making bot:
1. Slashed indirect costs:
Crypto Market Maker Companies fabricate algorithmic market making bots that take provide bid-ask limit orders that are very close to the price specified in market orders. Therefore, the indirect costs that exchange indirectly incur so as to pay a fee to market makers are reduced.
2. Less Volatile Markets:
Crypto market making bot is more efficient at reducing volatility than a human market maker as the price difference of consecutive trades performed by a human market maker would be much higher than done by an algorithmic counterpart.
3. Well-Organized Markets With Efficiently Priced Assets:
No matter if there are huge orders or small orders, the execution prices of all the orders are priced fairly. This also leads to lower impact costs.
4. Increased Liquidity Round the Clock:
With an efficient crypto market making bot, the liquidity of several assets across a trading platform can be maintained 24/7 effortlessly. The cryptocurrency market making bot works all day long without any breaks and are faster and more accurate than its human counterparts.
5. Efficient Execution of Crypto Market Maker Strategy:
Cryptocurrency market making bots can deploy various crypto market maker strategies without any missteps. Human errors while implementing certain strategies cause slippages and liquidity issues.
6. Faster Response Times:
Crypto market making bots perform mathematical calculations in microseconds and reciprocate accordingly. They can also gauge risks and opportunities faster than humans.
7. Scalability in operations:
Crypto market maker bots can scale up anytime and make markets for a multitude of digital assets simultaneously. One cannot expect such an extent of scalability from human market makers.
The recent advancements in the financial technology sector have facilitated the efficient, secure, and swift execution of trades. The use of crypto market making bots in market making brings enormous opportunities for market makers and cryptocurrency trading platform owners.
Get an algorithmic crypto market maker beset with ideal features and functionalities built for your cryptocurrency trading platform to promote a trader-friendly environment across your exchange platform.
Antier is one of the leading blockchain development and crypto market maker companies known for flawless, superior builds. Get in touch with them today to exploit their 7+ years of experience in the blockchain development domain.
