How does Market Making work?

Utilize the Market Maker bot on Cryptohopper to enhance liquidity and profit from spreads effectively.

Pete Darby avatar
Written by Pete Darby
Updated this week

Users that have a Hero subscription have access to a very interesting feature. The Market-Maker. But what is Market-Making? Why would you want to us it? There are three main reasons:

  • If you’re a trader and would like to profit from a spread.

  • If your project/coin doesn’t have enough liquidity and your spread is too big.

  • If you’re a starting exchange and need liquidity.

The Market Maker bot provides liquidity to a market of your choice or is a way to profit from a spread.

The spread is the difference between the highest bid and the lowest ask. See the markets as an actual marketplace. The highest bid is the highest someone is willing to offer, to lowest ask is the lowest price someone is willing to sell his assets for. Illiquid markets have big spreads, and market makers are the ones that place orders around to spread to profit from it, reduce the spread, and therefore create liquidity.

The definition of a market-maker: "A market maker must commit to continuously quoting prices at which it will buy (or bid for) and sell (or ask for) asstets. Market makers must also quote the volume in which they're willing to trade, and the frequency of time it will quote at the Best Bid and Best Offer (BBO) prices.

Market makers must stick to these parameters at all times, during all market outlooks. When markets become erratic or volatile, market makers must remain disciplined in order to continue facilitating smooth transactions."

How does the Cryptohopper Market Maker bot work?

The Market Maker bot of Cryptohopper allows you to place layered limit buy and sell orders, thus keeping the market liquid. By placing these orders, the orderbook of the exchange will change, making the spread smaller, it will reduce the spread and make the market more liquid.

When you set up a Market-Maker, you need funds in your quote currency and in the currency you want to make the market of. Your Market-Maker will place orders “around” the spread, depending on your configuration.

Markets change fast, so you need to be able to change your order price fast. Click on the buy/sell signs the create an order, drag and drop it to the desired place in the order book when things change.

Market trends change, so does your trading strategy. Automatically switch between strategies with different market trends. Use indicators to recognize market trends, and configure different trading strategies per market trend.

You can even configure how it should sell its orders. In a sideways market, you want to execute your buy and sell orders at the same time. When the markets go up, you first want to place buy orders and sell later. It’s the opposite with a down-trending market.

Did this answer your question?