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As others said, its determined by what people will pay for it. If you go to an exchange like GDAX (or any stock exchange), you can look at what is called the "o

As others said, its determined by what people will pay for it. If you go to an exchange like GDAX (or any stock exchange), you can look at what is called the "order book". If you are a trader, you can act as either a: - "Market Maker" - By placing an entry in the order book, which says something like: "I have up to 100 Bitcoin I'm willing to sell at $15,000.01 a piece", or "I'm willing to buy up to 100 bitcoin at 14,999.99 a piece". - "Market Taker" - You can do this by looking at the book and saying: "I will take that deal". You can also do a "market order", saying: "I want to buy 100 BTC at market price", in which case, the exchange will match you with as many sellers as it takes to fulfill your order of 100 BTC, working from the lowest offered price on up. The price is determined by either whatever the last trade executed at, or a weighted average of the buy side and sell side of the order book. If you hear someone talking about the spread, that is the difference between the highest buy price offered on the book, and the lowest sell price offered on the book. (2 cents in my above fictitious example). The exchanges make their money by running the order book, matching makers and takers, and charging a small fee for the transaction. (On GDAX for example, market makers get charged no fee, market takers get charged some fraction of a %). The exchanges make money on the volume of trades going through them. It can get a bit more complicated, but I hope that gives you an idea!

samfriedman 9y ago
Is there a term for those who take advantage of the spread to make their money, essentially placing buy orders and then turning around and placing sell orders? Seems like there must be people making money off those who only "Take" deals and never "Make" them.
- selectiveshift 9y ago
  That is what a Market Maker is.
  - TFortunato 9y ago
    Exactly. GDAX and other exchanges charge less or no fees to the market makers to increase liquidity in the market. (Basically lessen the spread and increase volume on the order book). From the exhanges POV this is useful because more orders = more money for then. From the market traders POV (the taker) this is useful because a lower spread and more volume means there is less chance of buying something they can't later sell. For the market maker, they make their money on volatility (aka the movement if the price). If they think the price is going up, they will offer to buy at a price higher than the current highest buy offer. This reduces the spread and increases the odds of someone taking their offer. They will then later sell those coins, and make a small profit on the movement. If they think the price is going down, they will place a sell order cheaper than the lowest sell, and then buy back later, making small profit whole keeping the same amount of coin / stock / whatever. Basically a "market-making" trader is less in it for long-term, and more interested in making money on the movement. Aside: You may have also heard of "short selling". This is when a market maker is betting the price is going to go down, but doesn't have anything to sell. In a short sale, they will borrow the stock/coin from someone else (such as the exhange or their broker), and sell it, promising to buy it back later to repay the loan of said stock / coin. Easy way to bet on perfornance of an asset you don't owb, but dangerous since if you are wrong and price goes up, the person who loaned it to you will want you to repay it back sooner rather than later, costing you money!
- drewrobb 9y ago
  Those are just called "market makers". As a market maker you might be exposed to the risk of always ending up on the wrong side of the market over a longer time. For example if BTC is generally moving up, market makers might eventually have sold all their BTC and end up with USD. Sophisticated market makers will thus try to maintain a neutral position to avoid that risk. Some exchanges will even offer market makers a fee rebate to encourage parties to become market makers.
- problems 9y ago
  If they're just doing so by essentially flipping between bid and ask prices they may also be called scalpers. https://www.investopedia.com/terms/s/scalpers.asp https://www.investopedia.com/terms/s/scalpers.asp

samfriedman 9y ago

Is there a term for those who take advantage of the spread to make their money, essentially placing buy orders and then turning around and placing sell orders? Seems like there must be people making money off those who only "Take" deals and never "Make" them.

selectiveshift 9y ago
That is what a Market Maker is.
- TFortunato 9y ago
  Exactly. GDAX and other exchanges charge less or no fees to the market makers to increase liquidity in the market. (Basically lessen the spread and increase volume on the order book). From the exhanges POV this is useful because more orders = more money for then. From the market traders POV (the taker) this is useful because a lower spread and more volume means there is less chance of buying something they can't later sell. For the market maker, they make their money on volatility (aka the movement if the price). If they think the price is going up, they will offer to buy at a price higher than the current highest buy offer. This reduces the spread and increases the odds of someone taking their offer. They will then later sell those coins, and make a small profit on the movement. If they think the price is going down, they will place a sell order cheaper than the lowest sell, and then buy back later, making small profit whole keeping the same amount of coin / stock / whatever. Basically a "market-making" trader is less in it for long-term, and more interested in making money on the movement. Aside: You may have also heard of "short selling". This is when a market maker is betting the price is going to go down, but doesn't have anything to sell. In a short sale, they will borrow the stock/coin from someone else (such as the exhange or their broker), and sell it, promising to buy it back later to repay the loan of said stock / coin. Easy way to bet on perfornance of an asset you don't owb, but dangerous since if you are wrong and price goes up, the person who loaned it to you will want you to repay it back sooner rather than later, costing you money!
drewrobb 9y ago
Those are just called "market makers". As a market maker you might be exposed to the risk of always ending up on the wrong side of the market over a longer time. For example if BTC is generally moving up, market makers might eventually have sold all their BTC and end up with USD. Sophisticated market makers will thus try to maintain a neutral position to avoid that risk. Some exchanges will even offer market makers a fee rebate to encourage parties to become market makers.
problems 9y ago
If they're just doing so by essentially flipping between bid and ask prices they may also be called scalpers. https://www.investopedia.com/terms/s/scalpers.asp https://www.investopedia.com/terms/s/scalpers.asp