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I've only dabbled a little in cryptocurrency exchanges, so the terms seem to refer to the same thing to me, but maybe it's contextual? Forgive my ignorance, but

I've only dabbled a little in cryptocurrency exchanges, so the terms seem to refer to the same thing to me, but maybe it's contextual? Forgive my ignorance, but can you explain the difference between market makers and speculators?

cm2187 9y ago
You have market makers where you don't have an exchange, or where there is very little liquidity. Usually a bank but not always. They are there to "make a market", i.e. to offer liquidity to clients. Speculators take a directional position. Market makers make money on the bid/offer.
- ycombobreaker 9y ago
  The exchange is not a counterparty. You have market makers there as well. Even in very liquid markets, it may be common to trade against market makers, just at a tighter bid-ask spread.
kgermino 9y ago
Think of a market maker as a used car dealer. Alice has a car that she wants to sell today and Bob wants to buy a car, but he won't be ready to until next week. The dealer will buy Alice's car today and hold it until Bob wants to buy next week (for a profit of course). Thus the dealer is making a market for Alicia to sell her car, and for Bob to buy one, without the two having to having to meet in time or space. Market makers perform a similar function on illiquid stocks, where there may be more sellers than buyers at one moment but more buyers Jan sellers the next. Speculators are simpler. They're the guy who buys Telsa roadsters because he thinks they will be a collectible soon.
stale2002 9y ago
A market maker takes both sides of the market, and makes money on the spread. IE, a market maker would have a standing order to buy 1000 shares of microsoft stock for 29.99$ and then have a second standing order to sell it for 30.00$ at the same time. If the market is on average buying and selling randomly, the market maker makes .01$ for every pair of buy and sell trade. A speculator is someone who takes only 1 side of the market. IE, they buy 1000 microsoft shares, hoping that the price will increase, or sells 1000 shares hoping that the price will decrease.

cm2187 9y ago

You have market makers where you don't have an exchange, or where there is very little liquidity. Usually a bank but not always. They are there to "make a market", i.e. to offer liquidity to clients. Speculators take a directional position. Market makers make money on the bid/offer.

ycombobreaker 9y ago
The exchange is not a counterparty. You have market makers there as well. Even in very liquid markets, it may be common to trade against market makers, just at a tighter bid-ask spread.

kgermino 9y ago

Think of a market maker as a used car dealer. Alice has a car that she wants to sell today and Bob wants to buy a car, but he won't be ready to until next week. The dealer will buy Alice's car today and hold it until Bob wants to buy next week (for a profit of course). Thus the dealer is making a market for Alicia to sell her car, and for Bob to buy one, without the two having to having to meet in time or space. Market makers perform a similar function on illiquid stocks, where there may be more sellers than buyers at one moment but more buyers Jan sellers the next. Speculators are simpler. They're the guy who buys Telsa roadsters because he thinks they will be a collectible soon.

stale2002 9y ago

A market maker takes both sides of the market, and makes money on the spread. IE, a market maker would have a standing order to buy 1000 shares of microsoft stock for 29.99$ and then have a second standing order to sell it for 30.00$ at the same time. If the market is on average buying and selling randomly, the market maker makes .01$ for every pair of buy and sell trade. A speculator is someone who takes only 1 side of the market. IE, they buy 1000 microsoft shares, hoping that the price will increase, or sells 1000 shares hoping that the price will decrease.