Market maker
Also called: MM · liquidity provider
Definition
A market maker is a trader or firm that continuously places both buy and sell orders on a market, providing liquidity and earning from the spread between them.
This entry is shown in English.
How Market maker works
A market maker quotes a bid slightly below the fair price and an ask slightly above it. When other traders hit those orders, the market maker buys low and sells high in small amounts, many times a day. The profit per trade is small, so the business depends on volume, speed and careful risk control.
Market makers keep order books deep and spreads tight, which lowers costs for everyone else. Exchanges often attract them with lower maker fees, rebates or special programs, and token projects sometimes hire market makers to support liquidity after a listing.
The main risk for a market maker is inventory: if the price moves strongly in one direction, they end up holding the losing side. In DeFi, automated market makers (AMMs) replace human quoting with a formula and a liquidity pool. Not every market maker is benign; some arrangements between projects and market makers have been criticised, so trading activity alone does not prove healthy demand.
Example
Suppose ETH trades around 3,000 USDT. A market maker posts a bid at 2,999.50 and an ask at 3,000.50 for 2 ETH each. If one trader sells 2 ETH into the bid and another buys 2 ETH from the ask, the market maker earns 2 × 1.00 = 2 USDT before fees. Repeating that thousands of times a day adds up, but a sudden 5% drop while holding 50 ETH would cost about 7,500 USDT.
Common mistakes
- Thinking market makers always push prices in one direction, when their core job is quoting both sides.
- Assuming a tight spread on a new token means deep liquidity, when a single market maker can pull its orders at any time.
- Confusing a market maker with a maker order; any trader can place maker orders.
FAQ
How do crypto market makers make money?
Mainly by capturing the bid-ask spread on many small trades, plus maker rebates or fee discounts where exchanges offer them.
What is the difference between a market maker and an AMM?
A market maker actively places and updates orders in an order book. An AMM is a smart contract that prices trades from a pool of tokens using a formula.