IN-DEPTH STUDY OF MARKET MAKER [CONCEPT] STEEMIT CRYPTO ACADEMY S4W6, HOME-WORK POST FOR @REDDILEEP.
INTRODUCTION
When we trade it's all about the value associated with the cryptocurrency pairs, trading in general goes in a zig-zag form, market doesn't go straight forward sellers sell down to the Support level, and buyers buy to the resistance level along the process there are always breakout and false signals.
while there are liquidity in the market there are always market fluctuations. Price moves up and down, we trade to make profit, so you have to minimize lots size thus managing your risk appropriately, this will lead us to the topic of discussion today which is Crypto market making.
DEFINE THE CONCEPT OF MARKET MAKING IN YOUR OWN WORDS.
Market making can be defined as a period in the market where liquidity is been provided, this liquidity can be provided through any financial institutions, thereby submitting bid and ask limit orders via any exchange. Market markers usually makes lots of profits by accumulating the bid-ask spread courtesy multiple traders. The main motive of market making is providing liquuidty in the Market.
If there is no liquidity in the market then trading won't excel because you trade to make money, without market makers liquidity in the market will be minimal. So they are very important in the trading Market today.
To be successful in the volatile market you must have a reliable and fast stable technology, thereby providing a splendid risk management system if all this is achievable then you will have a successful Market structure. Market Making works with implementations of various token projects, and they include.
Initial review; this review helps the liquidity providers to ascertain the uniqueness and objective required to provide liquidity to the pool, you will agree with me that those who provides liquidity to the pool has return on their investment each time their liquidity provided are been used up.
Liquidity provision; liquidity is been provided as a result of the token officially been agreed on in order to boost the market physcology by so doing customizing the market making program.
Note Market Making works with implementations of various token projects, they work in cendency with the Crypto exchanges in order to ascertain crypto market making programs they include.
- Initial review; here there will be a Splendid conversation with the Exchange be it a decentralized one or a centralized Exchange, the motive is to ascertain the uniqueness of liquidity provision.
Providing liquidity; often liquidity are always provided to the selected Crypto exchange this is done in respect to the market making programs.
You can see the vitality of the market making program, and how effective and productive they are courtesy providing liquidity, I will basic say that without the market making programs it will be very difficult to provide liquidity to an exchange.
when Market making programs are set aside it gives the mandate to ascertain the viscosity of liquidity been introduced into the market.
EXPLAIN THE PSYCHOLOGY BEHIND MARKET MAKERS. (SCREENSHOT REQUIRED)
Physcology behind market making is more like ascertaining the structures behind various determinations involved in the market, this has to do with risk, liquidity, market-making, and market-takers,
in the volatile Market before you take a position be it to go long or going short, but before doing that Market makers will provide quote for you, at this point you can carry out your buy/sell transactions.
In the process of carrying out your buy or sell orders you have to execute your bid-offer, spread beside your the external market environment, Note the various price outlined and the bid-offer spread, are basically based on the direct market acessibility.
The various spread offer by the market makers are usually expected, they are usually greather than the spread gotton if an investor operates directly courtesy the underlying market physcology for example the forex Market, the future market, the Crypto Market, or even the stock market where buying usually takes center stage thereby selling shares directly. Let's see this example below.
From the screenshot provided the bid is seen as $7.695, what this implies is that the market maker purchased this at this rate, now let's say the ask price becomes $7.859, then some profits have been made by the market makers.
As a trader you can limit your order, that is buying below the market price, and selling above the market price, but the process takes time before manifestation, that's why some traders buy at the market price.
Market makers have structure at which they operate, you find out that they subsidize their exposure courtesy trading by so doing the difference gotton can be seen as their profit even without trading.
One key benefits about market makers is that they give their client the opportunity to access massive acceleration in the market and the speculations too from a single trading platform, remember the efficacy of bid offer spread depends on the volatility involved in the market.
EXPLAIN THE BENEFITS OF MARKET MAKER CONCEPT?
In the process of determining the proficacy of a commodity or an assets, you the determinat always have a refined rewards to bang on and this are been achieved officially as a benefits courtesy the work done.
the market makers are those that provides liquidity into the market thereby submitting the bid and ask order, doing this isn't a charity but profits are assembled along the process, courtesy this I will highlight the various benefits and they includes.
- Market makers are involved in the determination of the charge they request for example the spread they charge courtesy buy or sell price, thereby transacting equally in the market.
Market makers has an objective to extablishing various quotes courtesy bid and ask price, you can say buy or sell price, no doubt this will be lower than the normal price. Let's say I want to sell a security I will probably be charged the ask price.
Investors receive spread, so that spread received by the Investor and the market price are basically the gains the Market makers gets, not just that they make profit by galvanizing liquidity to their various clients.
EXPLAIN THE DISADVANTAGES OF MARKET MAKER CONCEPT?
In life anything that has advantage has disadvantage too, the concept of market making is crutial Courtesy this question I will explore the various cons/disadvantages of market making or the disadvantages of a market maker.
Representation of conflict of intrest; the market makers can spot a clear conflict Courtesy order execution simply because they may be forced to trade against you.
Display un-recognized actions; market maker may showcase worse bid/ask price compared to what you will get from other market makers.
Currency manipulation; there is every tendency that market makers can manipulate currency prices, thereby making their customer's to trade profit objectives.
EXPLAIN ANY TWO INDICATORS THAT ARE USED IN THE MARKET MAKER CONCEPT AND EXPLORE THEM THROUGH CHARTS. (SCREENSHOT's REQUIRED).
Today there are more than 500 various Indicators, Indicators are basically used to confirm price movements in the market, and market makers exploits many of then, courtesy this I will be listing two of then and they include.
Moving Average
stochastic
Moving average is an indicator used to determine trends in the market, there are movements in the market courtesy that trends are detected, detecting trends gives you the limelight to know your entry and exit points in the market.
Moving average has the systematic ways at which it is calculated, you can calculate it easily what you need to do is to sum up the various data points in a specific period, and bisect it with the number of time period, with moving average you can easily determine trading signal.
Exploring moving average to chart.
From my chart above you will understand that moving average goes in the same direction to the trend, adding it to chart gives you a clear Overview on how it can be used to generate signals in the overall market.
Stochastic
This Indicator is seen as a momentum oscillator that compells a closing price of a trend to a specific range of it's price over a specified period of time, the oscillator works in conjunction with the price movements you can easily adjust the timing thereby taking the moving average as a positive. Let's try to apply this in a chart to get a clearer overview.
Here stochastic oscillator have been explored through charts, as you can see vividly the stochastic oscillator helped me to detect a sell signal when it crossed the two lines was pointing down which shows a downtrend what I did was to sell down the market.
CONCLUSION
Courtesy my homework task I was able to explain the concept of market making which clearly illustrates that in the market be it the forex Market, or the crypto market, liquidity is key and those who provides then are called the market makers, they are seen as a financial institution or banks, they make cool profits whebev they accumulate bid ask spread.
I also explained various Indicators used by market makers where I highlighted the moving average and the stochastic oscillator, moving average are oscillator used to determine trends in the market, the moving average works in synergy with the movements in price. While stochastic is an indicator of momentum that compells a closing price of a trend.
Thank you very much professor @Reddileep for this great lecture I really appreciate, hope to keep doing your homework.