[In-depth Study of Market Maker Concept]-Steemit Crypto Academy | S4W6 | Homework Post for @reddileep
define the concept of market making
market makers they act as a wholesaler by purchasing and selling securities to convince the market. The price they five analyze the market supply as well as demand at the point when the demand for security is low, and supply is high the cost of the security will be low.
Market makers could possibly make trade for their own account, which is referred to as principal trade.
Market making stimulate a smoother flow of financial markets, reason is that they make it simpler for investors and traders to purchase and sell. Paraventure there are no market makers to facilitate the market, I think there may be inadequate transaction with limited involvement activities
Market makers are focused and disciplined because they need to proceed in stimulating smooth transactions when the market becomes unstable.
what market makers do
They take part in the securities market by contributing to trading services for investors as well as stimulating market liquidity. Precisely they give bids and offer for a specific security in addition to its market volume.
Market makers, get their money from purchasing assets when it's low in price then resell at a higher price. this is the bid-ask spread. The more an asset is traded actively the more money a market maker gets.
In addition to all that has been said above it is believed that market makers influence the market because they can stimulate the price of a particular asset to grow. For instance when investors want to hold thereby making more demand and lowering supply. Market market makers increase the price they want to pay in other to trick sellers to trade their assets as well as making the price increase.
psychology behind market maker
Psychology in the market is known as the emotions with a mental state that aid to authorize success or failure in trading assets. In other words greed, fear is naturally connected with market psychology, while hope, with regret, additionally contribute to trading behavior.
Having known this it's is important to understand the mindset of the market makers which is
To make a profit and aid transactions to go smoothly by providing liquidity. Market makers fix limit orders for both buy and sell.
image from binance account
According to my screenshot from the binance account, the bid here is $176 which indicates that the market maker bought it at that rate. If the ask price is seen as $179 then it shows that a 0.03 profit has been made by the market marker
Market makers give a rate that suits them to purchase and sell this process is executed base on the number of individuals that want to sell. If they are vastly market makers reduce the price to their choice by fixing a buy limit order. At this point when vendors/ sellers accept their price, it turns the market price of the traded coin.
benefit of market markers
One of the benefits of market makers is that they boost a smoother flow of the financial market making it simpler for investors with traders to purchase and sell.
the market maker keeps up the functionality of the market by instilling liquidity. They do so by making sure that the quantity of trades is huge enough such that trades can be enforced seamlessly.
they benefit us also because their absence can make investors Not to be able to sell their asset as the market does not have ready-made buyers constantly ready to buy. This can cause the seller to wait in other to see a buyer to peer with and this will consume time.
market makers also aid in regulating the price of under or overvalued assets. Since market makers can handle the number of assets inside the market, and accordingly fix the price for that asset dependent on supply and demand, they can assist with expanding the price of an undervalued asset by putting up its price, or diminishing the price that is overvalued by bringing down its price.
disadvantage of market marker concept
Market makers can likely exploit the price of a currency to run their customer's stop or not let customers trade to get to their desired profit.
they could potentially move their currency quotes 10 to 15 pips away from another market percentage.
market makers mop on scalping practices as well as inclining to put scalpers on manual execution. Meaning that their orders could not get filled at the price they desire.
market maker can grant a clear conflict of interest in order implementation as investors can be traded against by market makers.
two indicators used by the market maker concept
One of the benefits of market makers is that they boost a smoother flow of the financial market making it simpler for investors with traders to purchase and sell.
the market maker keeps up the functionality of the market by instilling liquidity. They do so by making sure that the quantity of trades is huge enough such that trades can be enforced seamlessly.
they benefit us also because their absence can make investors Not to be able to sell their asset as the market does not have ready-made buyers constantly ready to buy. This can cause the seller to wait in other to see a buyer to peer with and this will consume time.
market makers also aid in regulating the price of under or overvalued assets. Since market makers can handle the number of assets inside the market, and accordingly fix the price for that asset dependent on supply and demand, they can assist with expanding the price of an undervalued asset by putting up its price, or diminishing the price that is overvalued by bringing down its price.
Market makers can likely exploit the price of a currency to run their customer's stop or not let customers trade to get to their desired profit.
they could potentially move their currency quotes 10 to 15 pips away from another market percentage.
market makers mop on scalping practices as well as inclining to put scalpers on manual execution. Meaning that their orders could not get filled at the price they desire.
market maker can grant a clear conflict of interest in order implementation as investors can be traded against by market makers.
two indicators used by the market maker concept
The use of technical indicator aid traders to carry out analysis of particular assets to know when to enter as well as exist the market. Also useful in spotting trends the market makers utilize many indicators. But for this task, we are asked to explain only two which ill be working with the
- relative strength index (RSI) And
- moving average.
explain them
The relative strength index is known as the momentum indicator that signals the market makers about the overbought and oversold situations of particular assets.
Due to unstable nature of crypto currency market, technical indicators gives a guide to plotting entry and exist point. Hence RSI is a sensible indicator for crypto traders.
explore them through chart
The RSI index is setting is 14 close. According to the chart above the RSI authorize value that is above 70 to be overbought and might be prepared for a trend alteration or revise price pullback.
Moving average:
The moving average is the computation to interpret data points by verifying a sequence of an average of a different subset of the full data.
A moving average is known as a stock indicator naturally used for technical analysis objectives, they are calculated to spot the trend direction of an asset or to determine its resistance with the support level.
Moving average utilizes past price movement to determine the direction in which a trend will change position.
in conclusion
A market maker can be an individual or member firm of exchange that purchases and sell assets for its account. Market makers are been compensated because of the risk they go through to hold an asset. We all know that the crypto market is volatile so the value of that asset could drop in the middle of its purchase and sales and sales to another buyer.
Thanks for reading through.
Cc.reddileep
