What is a market taker in crypto? Uncover the vital role market takers play in maintaining the fluidity and pace of the crypto trading market.
In the dynamic world of cryptocurrency trading, two key participants, market makers, and market takers, play an integral role in maintaining liquidity and smooth functioning of the market. Our focus here is to explore – what is a market taker in crypto?
Understanding Order Types
To fully understand what a market taker is, it’s crucial to first understand the two primary types of orders in cryptocurrency trading: limit orders and market orders.
Limit Orders
A limit order is when a trader specifies the maximum price they are willing to buy a cryptocurrency or the minimum price at which they are willing to sell. This type of order is not always executed immediately and will only be fulfilled when the market price reaches the trader’s specified price.
Market Orders
On the contrary, a market order is an order to buy or sell a cryptocurrency immediately at the best available current price. Unlike limit orders, market orders do not specify a price and are fulfilled instantly at the current market rate.
What is a Market Taker – Definition
A market taker is a trader who places market orders on the exchange. These orders are filled immediately at the best available price by matching them with orders from market makers. As such, market takers ‘take’ the liquidity out of the market because their orders are matched with existing orders on the order book.
By placing market orders, market takers are essentially willing to buy or sell at any price to fulfill their order immediately. This immediacy often comes at the cost of higher transaction fees. This is due to the fact that takers, by taking liquidity off the book, cause spreads to widen, leading to market instability. To compensate for this, exchanges typically charge takers a higher fee.
Role of Market Takers
Market takers play an important role in crypto trading, especially in providing fluidity and maintaining market dynamics. Here’s how:
Immediate Transactions
Market takers help facilitate immediate transactions. By placing market orders, they ensure that transactions happen swiftly without waiting for a matching limit order.
Liquidity
Although market takers remove liquidity from the order book, they contribute to the overall market liquidity. Their transactions help keep the market moving and ensure there are sufficient orders being filled.
Market Reaction
Market takers are often the first to react to market news or shifts. This is because their primary goal is to execute trades as quickly as possible, often in response to changing market conditions.
Market Taker Fees
As we mentioned earlier, market takers usually pay higher fees compared to market makers. The fee structure can vary from one exchange to another, but taker fees typically range from 0.10% to 0.25% per trade. However, it’s essential to research each exchange’s fee structure as some may offer volume-based fee structures or reduced fees for utilizing the exchange’s native tokens.
Conclusion
So, what is a market taker in crypto? A market taker is a participant in the crypto market who uses market orders to ‘take’ orders off the market, providing fluidity and quick reactions to market shifts. Although often subject to higher fees, market takers are essential to the overall function and efficiency of the crypto markets.