What is A Market Maker and How Is It Different From Crypto Broker?

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The cryptocurrency market has many participants: exchanges, miners, wallet providers, holders, traders, token issuers, advisors, brokers, market makers, etc. Some provide services and platforms for trading, others facilitate trades between parties, and some deliver liquidity. For example, brokers earn from matching buyers and sellers for crypto assets. Examples are Robinhood, Webull, and TradeStation Crypto.

Market makers’ role is to “create a market” for investors to buy and sell crypto at a fair price and in any amount. They provide liquidity for other traders for successful work on a crypto exchange. Examples of market makers: NinjaPromo, GSR, and Bluesky Capital.

Market Maker vs Broker

Crypto brokers and market makers are different players in the financial markets. Here are the crucial differences between them:

  1. Function. Brokers act as intermediaries between buyers and sellers. They facilitate the buying and selling of cryptocurrencies by connecting traders with liquidity providers such as exchanges or market makers. Market makers, on the other hand, are entities that provide liquidity to the market by quoting both buy and sell prices for a financial instrument. They operate on a market maker platform and stand ready to buy or sell assets at any time.
  2. Role. Brokers execute trades on behalf of their clients by matching buyers with sellers. They may offer additional services such as research, analysis, and trading platforms to assist traders in making informed decisions. Market makers actively participate in the market by providing continuous buy and sell quotes. They help ensure there is a readily available market for a particular asset, reducing the bid-ask spread and enhancing liquidity.
  3. Profit making. Brokers typically charge fees for their services. They may earn money through spreads, but their primary revenue source is often the fees they charge for executing trades. Market makers profit from the bid-ask spread. They buy assets at the bid price and sell at the ask price, taking the difference as their profit. 
  4. Risk. Brokers usually do not hold inventory of assets but match buyers with sellers. Market makers actively engage in trading and, therefore, carry some level of risk associated with market movements.
  5. Regulation. Brokers are often subject to financial regulations that vary by jurisdiction. They need to comply with rules to ensure the fair and transparent execution of trades and protect the interests of their clients. Market makers may also be subject to regulations, but their activities are primarily focused on providing liquidity.

Broker is a broader term that encompasses various entities involved in facilitating trades between buyers and sellers, while a market maker in crypto represents a specific type of participant that plays a crucial role in providing liquidity to the market.

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