Hey steemians hope all are doing well. The lecture delivered by professor @reddileep about In depth study of Market Maker Concept an amazing topic and very interesting.
Question no 1
Define the concept of Market Making in your own words.
Market maker a person or a firm who diligently quotes the two sided market in a certain security.
The very common example of Market makers is Brokerage houses.
As we all know the prices of crypto currency fluctuate every second and are always in a upward and downward movement.
As the trade involves buying and selling of a Commodity on a price which the seller is willing to sell.The market makers implement a artificial process and create an environment of marmet that provides liquidity by placing their own buy and sell order. As this process implementated the small traders money drawn to the large traders as this is followed by all the markets.but the most important things are the trader should first identify the correct process followed by the market makers and the exact time when to
enter and exit into the market.
We can easily evaluate the position of both thee parties the buyer and the seller.
The market maker is the person who provides liquidity to the market by a imaginary process and by this liquidity the buyer may attract the prices but there is a risk because this trade is not that easy the buyer(market taker) should first examine all the conditions that is the process of trading and the exact time these are the most important part for the traders that must be keep in mind while doing any trading.
Question no 2
Explain the psychology behind Market Maker. (Screenshot Required)
The psychology behind the market depends on the buy and sell orders but there are not only buyer and seller involved in this there many more people who conduct these orders because the trading is carried out every second in a day there are many people who do not trust the current price of the commodity so the set according to their choice.
The people set their own prices known as market makers they set the price which are reliable for them. They can create both the buy and sell order. They actually do is they buy the Commodity on low price and then sell in on the higher price comapre to the buy order. As we above discussed that the duty of these makers is to create liquidity in the market by buying and selling the commodity on their own set prices they create a gap with is then filled up by the market takers.
As above the image can clearly evaluate the psychy behind the market.
As an example if the market maker can create both buy and sell he decided to buy a Commodity on their own set prices he set a buy order of $10 and then sell it to $12 by this he provides liquidity and the of $2 is then set by the other traders whinch are present in the market as they are the *maket takerbut they have to face risk as there are only the market maker in the market the important role in the this market is also played by the *whales these are the people who create a greater amount of liquidity in the market which is very harmful for the small traders in the market so the maket takers should always be aware of this scams which are also existing in the market at the same time.
Question no 3
Explain the benefits of Market Maker Concept?
The advantages of market making are as follows:
Distribution of liquidity
Market makers carried the liquidity to the market as they provide liquidity by creating the buy and sell orders they have a gap between the orders. This gap is the profit of traders means the market taker which facilitate to create the order frequently.
Efficiency of Bid Ask Spread
Market makers can easily control the fluctuations of price in the market as they can keep the price to a higher level for example, they help to bring the price from low to high as the level is going down they demand for high as Ask price and sell the coin at the bid price which they ask for.
Increment of participant
As this process can bring more traders into the market by providing the coin greater value. Traers usually are not involved in larger trading but they look for the best opportunity to make profit at low risk.
Exact time
If the traders are aware of the exact time of Market when to get into the market and get exit of the market they can easily enjoy the great benefits by making worthy decisions of sell and buy of a Commodity.
Question no 4
Explain the disadvantages of Market Maker Concept?
Short term liquidity
In the crypto market there are various market makers that are not efficient in the market but sometimes they execute artificial liquidity to grab the attention of the traders only for the short term period.so,this may be a risk for a beginner to make the trading with these makers because they only provide liquidity for short term.
Authentication of system
If the system is not be identified by the traders as we discussed above the market makers are the liquidity providers so many of us can earn a great profit while on other hand, the small traders can face loss if they are not correctly aware of the system provided by the market maker.
Creating fake signals
As,market makers create the fake signals by rising the prices without any reason so by this act the smaller traders who are not much aware of the maket position theey buy the commodity on higher price with the hope that they may rise more and when the price maker again get back to the prices at normal the smaller traders who buy the commodity face loss by selling them at low prices.
Question no 5
Explain any two indicators that are used in the
Market Maker Concept and explore them through charts. (Screenshot Required)
As we know the market makers are one the intellectual people they can easily control the situation of thee market by manipulating the prices of the commodity. So, for avoiding the risk and scam we use the indicator for knowing the actual condition of the market so that we can not trap by the spiteful people.
For answering this question i will be using RSI Indicator as we all are known about this indicator.
As in the above example, I explore the BNBUSDT chart. You can identify that i have highlighted the area of rsi indicator which means that the coin has been overbought in that region. This means that the price of the coin is more than that it worth and indicates a sell signal.
As you can see the parallel movement of the price shows the ascending movement of the price. As the signal gives strong sign to sell the price increases. The market makers guides the investors to sell that the prices are actually in the buying process because they can be manipulated by the maket makers.
The next indicator i am going to explore is Moving Average
This is also an important indicator which usually used by the traders and investors both for forecasting the fluctuations of the price of asset in the market.
This indicator is mostly used to identify the short term price movement as we are required in the process of market making.
Thus indicator evaluate the trend direction which are related to the support and resistance level. As knowing all the downward and upward trends.
Moving average indicator have two important component which are MA-50 and MA-9. They identify the two points which are golden cross and the death cross. The short term movement MA (MA-9)is when going to the long term movement MA(MA-50)and then it make a cross above like a uptred so this is known as golden cross as this reversed and going from short to long term MA-50 than it is known as death cross.
As, discussed above market makers provides liquidity to the market that they may supply a huge amount of volume into the market to the extent that may be a golden cross or a death cross. This may divered the mind of the traders and this fake signals can make the smaller traders to face risk and to occur loss.
Conclusion
As we have discussed whole concept in detail but the summary is,
The market maker the person who set their own prices they do not depends on the price regulating at the moment but they create their own buy and sell orders by this the process of trading begins and the maket takers place the order at the price which is being set by the market maker but the small traders have to be aware of all the risks which are present in the market so they can make a wise decision in trading.
Thanks professor @reddileep for this lecture