Market makers: who is on the other side of your trade

You tap buy, the order fills instantly, and the price barely moves. That did not happen because the market conjured a matching seller out of nowhere at that exact second. Someone or something was already standing there, ready to take the other side. That is a market maker's job.

What is a market maker?

A market maker is a firm or a piece of automated trading software that continuously offers to both buy and sell an asset, at all times, at two slightly different prices. It quotes a price it will buy at and a higher price it will sell at, and profits from the gap between the two, known as the spread. Its purpose is not to bet on which way the price moves. It is to always be there, so anyone who wants to trade has someone to trade with right now, rather than waiting for another trader to show up wanting the opposite.

How does a market maker actually earn money?

It earns the spread, over and over, across a huge number of trades. Say a market maker quotes a buy price of $99.95 and a sell price of $100.05 for the same asset. A trader who wants to sell immediately gets $99.95; the next trader who wants to buy immediately pays $100.05. The market maker pockets that 10-cent gap, whichever direction the market ultimately moves, as long as its buying and selling roughly balance out over time. It is a volume game: a tiny edge, repeated constantly, rather than a directional wager on where the price ends up.

Order books versus automated pools

On an exchange with an order book, market makers are the ones placing the resting buy and sell orders that fill everyone else's market orders instantly. Without them, an order book can sit thin, and a trader placing a market order gets a far worse price simply because too few resting orders exist to fill against. On a decentralised exchange built around an automated market maker, the role is played by a liquidity pool instead of a firm: anyone can deposit assets into the pool and the pool itself quotes prices algorithmically, earning a share of trading fees rather than a manually managed spread. The function is the same, always ready to take the other side, even though who is performing it differs completely.

Why market-maker activity is what liquidity actually means

Liquidity is not a fixed property an asset either has or does not have. It reflects how much active market-making is happening around it, at that moment. An asset with tight spreads, deep order books and prices that barely move on a normal-sized trade has market makers actively working it. A thin asset has none of that. A moderate order visibly moves its price, either because the asset is obscure or because market makers have pulled back. That pulling back is exactly what happens during a stress event: when volatility spikes sharply, market makers widen their spreads or step away to limit their own risk, and liquidity that looked solid for a moment can evaporate fast.

How Northtape reflects this

Northtape's Tradeable marker on the markets page is a liquidity screen built for this reality: a coin qualifies only if it ranks in the top 100 by market cap and clears US$10 million in 24-hour trading volume. Volume is not the same thing as the presence of a market maker, but the two move together in practice, since a market maker's continuous quoting is a large part of what generates volume in the first place. Failing that screen does not mean a coin is broken; it means you can expect wider spreads and more price impact on the exact trade you are about to place.

FAQs

Is a market maker the same as an exchange? No. An exchange is the venue where trading happens; a market maker is a participant that trades on that venue, continuously offering both sides of the market so others always have someone to trade with.

Do market makers guarantee a good price? No. They narrow the typical gap between buying and selling, but during a sudden volatility spike they can widen their spreads sharply or withdraw, which is exactly when a trade can cost far more than the quoted price suggested a moment before.

Why do some coins have much wider spreads than others? Wider spreads usually mean less market-making activity around that asset, whether from lower trading volume, less-established infrastructure, or market makers judging the risk not worth quoting tightly.

Can I become a market maker myself? In a hands-off sense, yes: depositing assets into an automated market maker's liquidity pool makes you part of the pool that quotes prices, though it carries its own risks, including impermanent loss, that are worth understanding before you do.

None of this is investment advice. Spreads, depth and market-maker behaviour change with market conditions and can shift sharply during volatility, so treat any figure here as an illustration of how the mechanism works rather than a live number to trade on.