[In-Depth Study of Market Maker Concept] - Steemit Crypto Academy - S4W6 - Homework Post for @reddileep
Hello, professor @reddileep, I am humbled to be one of your students in the lecture In-Depth Study of Market Maker Concept and I prevail to you my homework post for the assignment that you laid out to the steemians.
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Define the concept of Market Making in your own words.
When somebody wants to buy or sell cryptocurrencies, they need to go to an exchange where buyers and sellers meet and the price they pay depends on the supply and demand at that moment which is translated to the bid price to buy and ask price to sell. The difference between the bid and the ask is called the spread and if there are limited counterparties to trade with, it may not be possible to buy and sell which makes the market considered illiquid. New exchanges or newly added coins that have just had their ICO often lack liquidity and have a big spread thus to guarantee liquidity exchanges ask professionals to provide a bid-ask spread to the market continuously.
In other words, these professionals make markets hence why it’s called market making. Market makers usually don’t base their trading on market movements but make a profit on the difference between the ask and the bid, the spread, that is to say, the market maker normally places an order on the top of the order book and will try to sell it immediately and the profit they take is the spread. The risk market makers have is that the markets drop so quickly that they are not able to sell the newly bought asset with a small profit.
Explain the psychology behind Market Maker. (Screenshot Required)
A market maker is an individual or firm that stands ready to buy and sell a particular crypto asset throughout the trading session to maintain liquidity and a fair, orderly market in that crypto asset. Sometimes no one might be selling a crypto asset that you are interested in buying or no one might be bidding a crypto asset that you are trying to sell and this is where the market maker comes in by making a market or making bids and offers to accommodate orders that can not be matched in the market.
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[screenshot]((made with Microsoft word))
The bid-ask spread is maintained by the market marker and it is the difference in price between the cost of buy and sell of an asset. For example, the market bid to ask for a crypto asset is $20.00 to 20.05, the market maker decides to buy the crypto asset with $1000 and now he has the crypto asset worth $1000 sitting in his wallet and he hopes to get a buyer very soon. The market maker offers to sell his crypto holdings for $20.04 each thus creating or making a new market and because his offer is now the best offer, he attracts another buyer who is willing to buy the crypto asset with $1000. The bid-ask spread of $0.04 represents the market maker’s profit of $40. By buying low and selling high, market makers can capture profits through these relatively small spreads.
Explain the benefits of the Market Maker Concept?
Explain the disadvantages of Market Maker Concept?
Explain any two indicators that are used in the Market Maker Concept and explore them through charts. (Screenshot Required)
I have chosen to use EMAs which are suitable to use in the market maker concept while performing a trade. Generally, after a rise or a drop the market should chop or pull back because it costs money to move the market, that is to say, market makers are the guys behind the moves and at some point, they need to book their profits. When they close their large positions either the demand or the supply of that particular cryptocurrency asset surges which leaves a trackable pattern that is easy to see to the trained eye.
Mostly these surges in demand and supply result in price pulling back and 85 to 95% of the time market makers introduce funds again at the 200 ema which is the point where traders should start looking for opportunities. A trader should keep in mind the best timing to look for these moves and in this case, I use the easiest time frame to observe these moves in the 15 minutes time frame.
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I used 3 EMAs which are 13, 50, and 200 where EMA 13 is the signal indicator, EMA 50 is the peak locker and the EMA 200 is the baseline. The first step is to wait for the 50 - 200 crossover which signifies injection of liquidity into the market by the market makers and wait then wait for price pullback to the 200 EMA. after the price has pulled back to the 200 EMA wait for the entry trigger where candle closure above or below the 13 EMA.
Therefore I would like to thank professor @reddileep for such an awesome lecture about market maker which has greatly improved my understanding concerning the financial markets.
You have been curated by @yohan2on, a country representative (Uganda). We are curating using the steemcurator04 curator account to support steemians in Africa.
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