Market making on crypto exchanges plays a crucial role in ensuring liquidity and efficient price discovery in financial markets. By facilitating continuous buy and sell orders, market makers contribute to the smooth functioning of trading activities. In this article, we will explore the formation of organic trading and discuss the importance of limiting price fluctuations.
We will delve into the concept of spread manipulation and examine the risks associated with adjusting the trading spread range. Furthermore, we will outline strategies for reducing and increasing the spread, highlighting the potential risks and implications for market participants.
By understanding these market making techniques and associated risks, traders can make informed decisions to optimize their trading strategies.
To maintain an even and smooth trading chart, it is essential to limit fluctuations between individual trades within a certain range, typically between 0.1% and 0.3%. Achieving this requires calculating trades based on the last price and preventing the spread boundaries from moving more than 0.3% to 0.5% from the last trade price.
The spread, defined as the percentage difference between the best bid (BB) and the best ask (BA) prices, serves as a measure of liquidity in the market.
Market makers employ a range of strategies to manipulate the spread and ensure efficient trading. One such strategy involves decreasing the trading spread range. This can be achieved by adding additional orders within the existing spread. These orders can be sell orders (ask), buy orders (bid), or a combination of both.
Adding sell orders reduces the spread towards a price decrease, potentially putting pressure on bidders and leading to additional token sales.
However, this strategy carries the risk of a decrease in token price.
In contrast, market makers may seek to increase the trading spread. This involves executing orders within the existing spread, either by buying tokens from other traders or selling tokens to other traders.
However, when buying tokens, there is a risk of losing money if market participants add sell orders that prevent the spread from increasing. Conversely, when selling tokens, there is a risk of token price decrease, albeit with a slight increase in the spread.
In conclusion, market making is a vital function in maintaining liquidity and facilitating efficient trading. By manipulating the spread and employing various strategies, market makers contribute to the stability and fairness of financial markets.
However, it is important to acknowledge and mitigate the risks associated with spread manipulation.
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