Anyone who is entering the crypto space and is trying to become a profitable trader, rather than just investing in an asset to be sold off in years, has probably heard the term "Market Makers" Most of the time, it's something like market makers pushing the price higher or lower, or trapping people and then shifting the price in a different direction, and so on. But what is actually their work? What do they do, and why do they do it? If we better understand that, it will definitely help us gain a better understanding of why these types of moves are happening.

What are Market Makers?

Market makers are entities, often large financial institutions, that stand ready to buy or sell financial instruments, such as stocks, bonds, currencies, or commodities, at publicly quoted prices. They do this by maintaining a bid (buy) and ask (sell) price for the assets they specialize in.

Now let's make it more easier understandable
Imagine you're at a flea market where people are buying and selling stuff. Market makers are like the folks who set up shop in the middle. They're always there, ready to buy or sell whatever you want. ( Just like @trumpman )

How They Work

Let's say you want to sell a something. You walk up to the market maker's table and tell them you want to sell it. They'll offer you a price, like $10. If you agree, they buy it from you. If someone else comes along and wants to buy that same toy, the market maker sells it to them for a bit more, like $11. The difference between what they buy and sell for is their profit.

Why They Do It

Market makers do this to make money. They're like the middlemen, helping people trade easily. They also keep things calm. Imagine if there were no market makers, and everyone had to find someone to trade with on their own. It would be chaotic. Market makers help make trading smoother.

Controlling Prices

Of course market makers keep eyes one the news and trends and when a sector or a particular asset becomes more desires or trends then they raise the price to profit even more.

In crypto there are one more type of Market Makers and that is the protocol called Automate Market Makers ( AMM )

Automated market makers (AMMs) are part of the decentralized finance (DeFi) ecosystem. They allow digital assets to be traded in a permissionless and automatic way by using liquidity pools rather than a traditional market of buyers and sellers. AMM users supply liquidity pools with crypto tokens, whose prices are determined by a constant mathematical formula. Liquidity pools can be optimized for different purposes, and are proving to be an important instrument in the DeFi ecosystem

Let's brake it down
Imagine you have two types of digital money, let's call them Money A and Money B. People want to trade these two digital monies with each other. Instead of having a traditional market with buyers and sellers, AMMs use a special computer program to make these trades happen automatically.

How all this work?

Money Pool, Think of a big digital piggy bank where people put their Money A and Money B. This piggy bank is called a "liquidity pool" But there is also one fundamental rule the total value (in Money A times Money B) inside the piggy bank should always stay the same. So, if more people put Money A into the piggy bank, there will be less room for Money B, and vice versa.

PricingIn an AMM The price of Money A and Money B is determined by how much of each is in the pool. If there's more Money A, it means Money A is more valuable, and if there's more Money B, Money B is more valuable. Why make this pricing easier? because with the AMM you don't have to find someone to sell you make the trade with the pool and the program sets the price based on the algorithm .

Who provides the liquidity?

The liquidity is being provided by anyone who wants to provide it like me or you and as a reward those that provide liquidity get a share of the trading fees as profits.

Links to read :
https://www.gemini.com/cryptopedia/amm-what-are-automated-market-makers
https://www.investopedia.com/terms/m/marketmaker.asp

Posted Using LeoFinance Alpha