The Role of Market Makers in Crypto Trading (04)

The success or failure of any crypto depends on the market makers because the role of market makers is immense in controlling the trading pair and keeping the price stable. In the last three posts, I discussed the role of market makers with you. Even in the last post, I shared some important points about how market makers play an important role in controlling the price and trading of cryptos. Today, I will discuss two strategies. Basically, the two strategies or steps taken by market makers in the field of crypto trading will be discussed here. Market makers normally apply several strategies to ensure they can profit from the bid-ask spread while managing the risks that come with providing liquidity in a volatile market like crypto. Two strategies are discussed below-

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Arbitrage:

This involves exploiting price differences between different exchanges. A market maker might notice that Bitcoin is trading at $71,000 on one exchange and $71,200 on another. By buying Bitcoin on the cheaper exchange and selling it on the more expensive one, they can make a profit from the price difference. Arbitrage opportunities in crypto are more common than in traditional markets due to the fragmented nature of the market. Always there is a slight difference in price in different exchanges.

Rebalancing:

Because market makers hold both buy and sell orders, they constantly need to rebalance their portfolios to avoid getting stuck with too much of one asset. If a market maker accumulates too much of a crypto by consistently buying it, they might temporarily adjust their prices to encourage selling and restore balance.

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VEIGO (Community Mod)

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