Market Makers and Market Takers Explained

Introduction

On any kind of exchange (whether Forex, stocks, or cryptocurrency), sellers are matched with buyers. Without these meeting points, you’d need to advertise your offers to trade Bitcoin for Ethereum on social media and hope that someone is interested.

Every market participant falls into at least one of these categories – the concept of makers and takers. Indeed, as a trader, you’ll probably act as both at some stage. Makers and takers are the lifeblood of many trading platforms, and their presence (or lack of it) separates strong exchanges from weak ones.

What is Maker

Exchanges often calculate the market value of an asset with an order book. This is where it collects all the offers to buy and to sell from its users. You might submit an instruction that looks like the following: Buy 800 BTC at $4,000, for example. This is added to the order book, and it will be filled when the price reaches $4,000. 

Maker (Post Only) Order like the one described requires that you announce your intentions ahead of time by adding them to the order book. You’re a maker because you’ve “made” the market, in a sense. The exchange is like a grocery store that charges a fee to individuals to put goods on the shelves, and you’re the person adding your own inventory.

It’s common for big traders and institutions (like those specializing in high-frequency trading) to take on the role of market makers. Alternatively, small traders can become makers, simply by placing certain order types that aren’t executed immediately.

Please note that using a limit order does not guarantee that your order will be a maker order. If you want to make sure the order goes into the order book before it is filled, please select “Post only” when placing your order.

What is Taker 

Order taking refers to the act of placing an order at a price you specify (crossed with an order in the market depth list) and immediately and actively filling it with another order in the depth list.

If we keep the store analogy going, then surely you’re putting your inventory on the shelves for someone to come and purchase it. That someone is the taker. Instead of taking tins of beans from the store, though, they’re eating into the liquidity you provide.

Think about it: by placing an offer on the order book, you increase the liquidity of the exchange because you make it easier for users to buy or sell. On the other hand, a taker removes part of that liquidity.  with a market order – an instruction to buy or sell at the current market price. When they do this, existing orders on the order book are filled immediately.

If you’ve ever placed a market order on MoonXBT or another cryptocurrency exchange to trade, say then you’ve acted as a taker.

Please note:

-Using a limit order does not guarantee that your order will be a pending order.

-If you want to guarantee that your order will be entered into the order book before it is filled, please select "Maker Only" when placing your order.