[In-depth Study of Market Maker Concept]-Steemit Crypto Academy | S4W6 | Homework Post for @reddileep

in SteemitCryptoAcademylast month (edited)

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Heya Steemians, I hope you are doing great? This is my submission to Professor @reddileep lecture on the in-depth Study of Market Maker Concept. The answers to his questions are as below;

What is Market Making??

The concept of market making is basically buying and selling assets at a price that a trader likes or suits the trader's style of trading.

In a real-life scenario, If someone decides to buy any item from the market, he has no power to set the price of the item because it would have already been priced before he gets to the market and has no alternative but to buy at the fixed price. But then in an open market, if a person decided to buy an item at $10 and upon reaching the seller but then the item cost for $15 dollars they could bargain till the price gets to $10 which was the desired price of the buyer intended to get the item.

So with the two scenarios above, we can differentiate between a market taker and a market maker. A market taker is a trader who immediately executes or takes trades at current market price while the market makers are those that don't buy or sell at the current market price but instead set their own market price and wait for the market price to get there.

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Psychology behind Market Maker.

What traders see on the chart to be going on might not be exactly true but could be considered as the half-truth. The hidden part of the psychology behind market makers is to get minimal profit difference and try to make a huge profit out of that. The role of market makers is to cause or create liquidity in the market ( areas for high buying and selling power).

A similar example is that if the market maker sets a buying order for $10 and makes a sell price at a profit of 3% that means $10.03. What usually happens is that the retail or normal traders will place an order between $10 – $10.03. That difference as seen looks very minute or could be significant to some traders but on the side of the market, it can be used to make a huge amount of profit.

So in a live market when the market maker sells 10M daily at the price of $10.03 he or she can generate a profit of $300,000. Market makers help traders by reducing the cost of transaction fees using the bid-ask spread.


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Benefits of Market Maker Concept.

Creates Market Liquidity:

For retail traders, it’s a hard thing to create liquidity. And retail traders wouldn't want to take any risk on assets which would lead to losses. Market makers set the pace for traders to run their trades hence defeating the delay that comes with the execution of orders.

They provide stability In the market:

Market makers concept provide stability to the price of assets by maintaining buy and sell prices in consistent range. By doing this too market spread is always kept closer or smaller.

Attract a huge number of investors:

The ability of market markers to ensure a stable market and also spread easily catches the attention of big investors. When investors see this they gain a high level of confidence in the assets they want to invest in.

Favours small traders:

Traders who have less influence in the market take advantage of the liquidity provided by the market makers. Through this, they can also make huge amounts of profit. The ability to detect zones where big market movers are providing liquidity is essential in trading and can be used to make lots of profit.

Disadvantages of Market Maker Concept.

* Liquidity may be provided for a short period:*

Liquidity is essential and needed in the market to maintain a stable spread but most of the time, market makers provided a short time for liquidity. Usually, big-time investors are caught in this and suffer great losses.

Price of assets can be manipulated by market makers:

From the explanations made above, you can see that market prices can be easily manipulated by the market makers and the big investors and that can easily throw traders off course and can suffer losses too.

Loss of asset:

Beginner traders who do not have any idea of what's going on behind the scenes by market makers can be lead astray and could end up losing their entire portfolio.

Explain any two indicators that are used in the Market Maker Concept and explore them through charts. (Screenshot Required)

Relative Strength Index(RSI):

The RSI indicator is one of the most commonly used indicators by traders for technical analysis. RSI is basically an oscillator that is made up of lines that moves to the top or to the bottom based on market fluctuation,
On default settings, the RSI length is 14 and RSI has a scale that ranges between 0-100. Most traders demarcate 70-100 as their overbought zone and when the line falls below 30 it is considered as the oversold zones.

In the chart below RSI indicator cross above the 70 and the overbought zone where the market maker can manipulate the market price by selling and taking a profit.

Screenshot (178).png

Moving Averages:

Moving Averages is a trend-based indicator. This indicator helps traders to know when a trend has begun or changed. Usually, 2 or 3 moving averages are combined to make this analysis. For the settings, one moving average is set higher than the other

Usually, the crossing of the price(candles) through the moving averages and also a cross between the averages can be sued to tell where the market is still in a range or has changed its trend.

Screenshot (179).png

The image above is a 4 Hour chart of BTCUSDT with a 9 & 20 Moving Average installed on it. A cross occurred at the circled area. At that point, you can see that the market maker produced a lot of selling pressure w hic was able to cause the price to the dropdown.
This was enough to create attention for traders to go on a bear ride


Hello @neilito Thank you for participating in Steemit Crypto Academy season 4 week 6.

Q1 content0.75/1
Q2 content0.75 /1.5
Q3 content1/1
Q4 content1/1
Q5 content1 /2.5
Quality of Analysis0.5/1
Post Presentation0.5/1

Homework task: 6


You almost didn't make it my friend. You almost ran out of time for your editing. I recommend that you don't try something so difficult again.

Regarding the post, it lacks a lot of content and deepen the analysis requested in some questions.

Just to give you an example in question 5 it was not enough just to present the indicators but you should make a psychological analysis of what the market making generates in them. But I guess that is due to the short time you had left.

Thank you Prof. I will do my extra best in this week's assignments.

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