From the Hyobi blog.
Did you know that if you’ve ever made a trade, you’ve already been a maker or a taker? In fact, you would have been both a maker and a taker at some point in your trading career. This lesson will discuss who these actors are and why they matter.
Makers ‘make’ the market by creating buy and sell orders that will possibly be executed sometime in the future. For example, you can set a limit order of “buy 100 USD worth of Bitcoin (BTC) to 100,000 USD/BTC price level”, and if the price reaches that level, the order will be executed by a counter-party sell offer. In the meantime, the order will be waiting in the order book.
Makers are essential to the health of the market because all non-immediate orders are placed in the order book to create “liquidity.” Liquidity or illiquidity refers to how easy it is to sell something. For instance, a gold bar is more liquid than an artwork — you can sell a gold bar pretty quickly, but it might take months to find a buyer for a painting so you can cash out its value.
For this reason, makers are also called liquidity providers because they create orders and wait for them to be filled, making it easy for a seller to come to the market and sell something; this enables the market to function seamlessly. Makers are so crucial to the market that exchanges usually offer rebates in the form of lower or non-existent fees (maker-taker fees).
As we’ve learned, makers place orders in the order book and therefore, increase the exchange’s liquidity as they make it easier for other traders to buy and sell tokens. Takers, on the other hand, remove some of that liquidity and fill (or ‘eat into’) the orders created by makers.
Takers use orders already in the order book to make immediate orders at specific prices. The logic behind this goes something along the lines of “Oh, the price is so good. I want to get these tokens right now!” Therefore, takers’ orders don’t enter the order book or create liquidity. If there is a lack of liquidity and you still want to open a trade, price differences may arise, especially with smaller tokens.
Exchanges are also businesses, and in traders’ eyes, the most attractive exchange is the one with the most liquidity because it enables them to trade with ease. In other words, there are always buyers and sellers for their sell and buy orders. As takers don’t create liquidity, exchanges usually make them pay higher fees.
How does one become a maker or taker?
There are different orders, and the kind of order you open determines whether you become a maker or taker. For example, if you want to place an order at a specific price that is higher or lower than the current price but do not need it to be placed immediately, you would create a limit order. This would make you a maker – you would be creating an order a taker can later use.
On the other hand, if you want to buy a token instantly, you would have to use a market order, which makes you a taker. As instant orders don’t enter the order book, you’d be ‘taking’ the order from the makers.
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This article came directly from the Hyobi Global blog, found on https://blog.huobi.com/market-makers-and-market-takers-which-one-are-you/