Market Definitions Guide: Maker, Taker & Liquidity


Successful trading of any asset has a key formula: buy low and sell high. Cryptocurrencies are no exception. But in order to understand how cryptocurrency trading works, it is necessary to study the main points and concepts when selling and buying assets.

Cryptocurrency exchanges that use the maker/taker fee model often charge minimal or no fees for maker orders (limit orders), but the fees for taker orders (market orders) are higher.

Market orders are transactions meant to execute as quickly as possible at the current market price.

Limit order sets the maximum or minimum price at which trader is willing to complete the transaction, whether it be a buy or sell.

It should be understood that when you place a trade order on the exchange, you represent one of two categories: a maker or a taker.

Market Taker is a market participant who agrees with the prices that are currently in the order book and wants to immediately execute a trade. If you are satisfied with the highest selling price or the lowest buying price and you execute the trade - you become a Market Taker.

Market Maker is a market participant who places orders at prices that differ from the current market price. Typically, the Market Maker will try to sell at a higher price and buy at a lower price. If you place an order with a price that differs from the market price, you are a Market Maker. Market maker orders are not executed immediately, they usually appear in the order book and are executed when the Market Taker finds a suitable price for himself.

Makers are users who place orders in the order book, increasing its size, thereby increasing liquidity for the exchange. And takers are users who remove orders from the order book, reducing its size, thereby reducing liquidity.

Liquidity is the ability of a cryptocurrency to be easily converted into cash or other coins. This indicator is important for all trading assets. Low liquidity means that market volatility is causing cryptocurrency price spikes. High means that there is a stable market with little price fluctuations.

On many cryptocurrency exchanges, maker fees are usually zero or lower than taker fees. Why does this happen? The point is that makers provide liquidity to the exchange, while takers take liquidity from the exchange.

Let us take a look at the prime example with the cupcakes at the store. When the supplier (maker) restocks the cupcakes (places limit orders) by bringing a new batch, he creates an opportunity (increases liquidity) for customers (takers) to buy some fresh cupcakes (execute the trade (decrease liquidity) at the store (market). If you are the user who places limit orders, then you will be charged a maker's commission. If you are a user who places market orders, then you will be charged a taker’s commission.