In blockchain, everyone must have heard of market makers, who are also known as liquidity providers to provide market liquidity benefits. How about the market liquidity can be seen from the price difference of the transaction list and also from the market depth. The lower the difference between the transaction orders and the deeper the market is, the better the market liquidity is. On the contrary, the worse it is. On the other hand, the small price difference and the large market depth come from the more active market trading environment and the market makers. Market makers should be indispensable in the financial industry, and certainly in the field of encryption. "

How to establish market making system in cryptocurrency market?

First, focus on the quality of transactions rather than the quantity. The key to effective transactions of cryptocurrency market makers is to select transaction quality rather than transaction quantity. Not all types of industries can make current market making strategies effective. Shock trading performs best in a strong trend, while automatic selling is often more efficient when the market is stable. Therefore, cryptocurrency market makers will generally determine appropriate trading strategies based on correct market regulation, and then find high-quality transactions.

Secondly, there is an appropriate exit mechanism. The high volatility of cryptocurrencies depends on the need for market makers to set stop loss lines to ensure the sustainability of market making. Market makers usually increase their positions in a strong trend, and can also lock in profits by expanding forward. When the market plummets, if no stop loss is set, the usual operational countermeasures may lead to the result of overall trapping. However, when the price fluctuates too fast, the stop loss is not always effective, and due to the occurrence of slip points, the stop loss effect may not be very good.

In addition, market makers should conduct reasonable inventory risk management. Generally, the inventory quantity and inventory risk are positively correlated in the market maker system. If the inventory quantity is large, the risk is large, and the change of inventory quantity and price is highly related; When the price is estimated to increase, the inventory will increase, and when the price is estimated to decrease, the inventory will decrease. However, when the price is really at a high level, the inventory quantity tends to decrease, otherwise, the inventory purchased at a high price will tend to decline with the decrease of the market price, and the inventory risk will increase. Therefore, in order to reduce such risks, market makers tend to reduce the inventory of cryptocurrency with large price growth. In this sense, the inventory is negatively related to the price of cryptocurrency. In addition, the inventory is positively correlated with the market maker's own capital.

Finally, do not overuse leverage. Market makers frequently use leverage to increase the order size. However, if they use too much leverage, once the countermeasures are not suitable for the current market, the losses will increase year on year. Therefore, as a market trader pursuing more stable income, it is generally not allowed to open the leverage too much.

Speaking of this, I believe you have a certain understanding of why the cryptocurrency industry needs market makers and how to establish a market making system. Generally speaking, market makers are the support of property transactions. They create and develop markets for new properties, and give new trading venues opportunities for survival and development. Whether in the cryptocurrency market or the traditional market, MM provides liquidity to ensure the stability of asset prices, which requires samurai level skills and related resources. Although market making is not suitable for everyone, it is easier to make a market in the encryption market.