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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?
by 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 agoThat is what a Market Maker is.
- TFortunato 9y agoExactly. 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 agoThose 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 agoIf 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