Crypto Academy Season 4 | Intermediate Level Course for Week 6 : [In-depth Study of Market Maker Concept] by @reddileep
Today's homework topic is about market making. The concept market maker plays dominating role to increase or decrease the value of any asset.
1- Define the concept of Market Making in your own words.
In any market in the world, two distinct things are always going on, one is buy and the other is sell. There can be no market in the world without buy and sell. If there is an opportunity to bargain for a product in the market then buyers must want to buy that product by bargaining. But if there was no opportunity to bargain, then there would be no more buyers bargaining.
There is an opportunity in the crypto market, you can create any order where you want. There are two main types of buyers or sellers in the market. There is a type of buyer who usually transacts at the current price that is in the market. We usually call this type of buyer or seller a taker.
There are some buyers or sellers who usually create market orders at will without buying or selling any commodity at market price. We usually refer to those who create such market orders as market makers. Market makers provide liquidity in a market in the scenario market taker execute their trade withen liquidity. Because liquidity refers that the percentage of successful order in particular time. It was the concept of market making.
2- Explain the psychology behind Market Maker. (Screenshot Required)
Some of the specific intentions of the market maker and do these things to achieve their Profits. First of all market makers do this to manipulate the market. If you want to understand the market manipulate, you have to understand their strategy first. In order to dominate the market for any goods, they first make a difference between the bid price and ask price that is called bid-ask spread.
Through this they try to create more and more liquidity in the market.A market maker or a group of market maker create bid and and ask price different. If they create buy entry $25 at the same time they creat sell order $30. By the limit order they provide liquidity. As a result market taker place order like the market maker. Because market taker buy the commodity with rapid transaction but the market maker create order like the difference in price is that the market is not as fast executed as the taker. As I discribed earlier, they have some specific intention. Their first intention is making profit by creating liquidity.
3- Explain the benefits of Market Maker Concept?
- Advantage of liquidity Since market makers provide liquidity through buy order and boy, market trackers can make their transactions very fast.
- Profit Create Market makers have intentions so that they can create a different price from the current price that can be increased. Usually the market taker takes advantage of this. They can make quite a good profit here. Here it is very easy for the holder and owner to make a good profit. Even if small traders understand the market situation well, these small traders can earn good profit from here.
- Market Value A product whose market price increases at the same time increases its market value and It is able to create a kind of value in the market.
- Participants This asset came to the notice of many trader when the market value increased. As a result, lots of traders start trading and increase the participants.
4- Explain the disadvantages of Market Maker Concept?
Devaluation of Commodity As I discribed earlier that market maker or a group of market makers able to manipulate market when they want. They can take exit from the market at any time if the interest of the market maker is achieved. As a result the value of this product can decrease when they take the exit.
Losses of Small Trader Big disadvantage for market takers and small traders. If there is a misunderstanding to entry and exit the market then they have a tendency to lose.
Trend Retresmen If there is a bullish moment in the market at the entry of the market maker, then there will be a bearish - moment in their exit, so I think it is a disadvantage thing for that coin or token.
There is a possibility of capital liquidation of small traders which is very dangerous.
5- Explain any two indicators that are used in the Market Maker Concept and explore them through charts. (Screenshot Required)
The first indicator I will use to answer this question is (Relative Strength Index) RSI. RSI is a momentum indicator and Its display us oscillator and recent price change in the market.
One of the most widely used indicators and reliable. RSI has a unique function by which a trader can understand overbought and oversold. The default setting of this indicator is usually used to determine overbought and oversold. We will use the the default settings.
In the default settings have a reading form 0 to 100. Since the value of RSI 70 or above it refers that overbought. That means 70 to 100 reading forms is overbought and 1 to 30MA oversold area.
From the above picture, In RSI indicator I have tried to indicate overbought and oversold.
Moving Average
Moving average try to find out the upcoming trend in market. It is very famous indicator because of the easier read and understand. I have tried to find out golden cross in BTCUSDT charts. To find the Golden Cross from chart you have to take two different moving averages.
If we look at the chart carefully, we will notice two moving averages. One is 50MA and another is 200 MA. To get the Golden Cross, I two moving averages and changed the default setting. And at one point 200 moving averages crossed 50 moving averages and this part is called the Golden Cross. We know that when the 50 Moving Average crosses the 2000 Moving Average and and try to cross above, the bullish trend is seen in the market. We can see in the chart just as it should be. Following this strategy the presence of market maker is very easily understood. This is because two different periods have been used which give the overall result using the given time. After the Golden cross price bullish moment.
Death Cross
In the given picture I have tried to show the death cross. The Death Cross occurs when the Fifty Moving Average crosses the 200 Moving Average and moves downwards. A bearish moment can be observed in such a situation and it has happened in the above chart.
Conclusion
The lesson was very amusing and educative. I have learnt about market maker very clearly. How to work and differents strategy of market maker explained by the lesson. The advantagea and disadvantages of market maker neing cleared by the lesson. We have tried to determine its manipulation through chat. Thank you Professor for your interesting lesson.