Maker and taker meaning in crypto markets refer to an integral part of the market. The makers create buying or selling orders that are not carried out immediately, while the takers are those who buy or sell instantly. This creates liquidity within the market, hence it is easier for others to instantly buy or sell BTC when the condition is met.
What is liquidity?
Liquidity refers to how easily an asset can be sold. An ounce of gold is a very liquid asset because it can easily be traded for cash in a short period of time. A very rare Ferrari, unfortunately, is a highly illiquid asset. This is because not everyone would be interested in such an item.
A liquid market is one where you can buy and sell assets easily at a fair value. There is high demand from those who want to acquire the asset and high supply from those who want to offload it.
Given this amount of activity, buyers and sellers tend to meet in the middle: the lowest sell order (or ask price) will be around the same as the highest buy order (or bid price). As a result, the difference between the highest bid and the lowest ask would be tight. This difference is called bid-ask spread.
On the other hand, an illiquid market would lead to trouble selling assets, and its bid-ask spread would be much higher.
Market makers
Exchanges often calculate the market value of an asset with an order book. This is where it collects all the offers to buy and to sell from its users. You might submit an instruction that looks like the following: Buy 800 BTC at $4,000, for example. This is added to the order book, and it will be filled when the price reaches $4,000.
Maker Orders like the one above require us to announce our intentions ahead of time by adding to the order book. Essentially, we “made” the market, hence the name market makers.
It is very typical for big traders and institutions (e.g. those specialising in high-frequency trading) to take on the role of market makers. Alternatively, small traders can become makers, simply by placing certain order types that aren’t executed immediately.
Market Takers
A taker removes part of that liquidity that is formed by the makers. They do so with a market order – an instruction to buy or sell at the current market price. When they do this, existing orders on the order book are filled immediately.
Generally, makers are offered some kind of rebate, as they’re adding liquidity to the exchange. Adding liquidity to the market will entice more traders, as trades are more easily executed. In many cases, takers pay higher fees than makers, as they don’t provide the liquidity that makers do. This is what we call the maker-taker fees.
In Conclusion
Maker and taker meaning in crypto stands for two very integral parts of the market that add liquidity to the market.
