Market making is the process of forming a market and trading for a cryptocurrency. It consists of two parts:
Listing on exchanges and the start of trading is the main event in the life of any cryptocurrency as it opens up the opportunity for anyone to buy or sell it. Cryptocurrencies are listed on both centralized exchanges (CEX) and decentralized exchanges (DEX).
We have devoted a separate page to this, ‘Getting Listed on Crypto Exchanges,’ but in short:
All major cryptocurrencies, for example, stablecoins, are listed on both types of exchanges. When your cryptocurrency gains strength, you might want to list it on CoinMarketCap. This significantly increases reliability in the eyes of traders. We also have a separate page about this, ‘Getting Listed on CoinMarketCap.’
After the start of trading, prices for some cryptocurrencies soar 30-40 fold, while for others, on the contrary, they decrease and can fall almost to zero.
A multitude of factors influence this, including:
If you have issued a cryptocurrency, you, of course, need to ensure the possibility and convenience of trading so that the depth of market is full and spreads aren’t wide. It will also be useful for you to influence the price so that it doesn’t skyrocket before you are ready, or, conversely, doesn’t fall to zero for some unfortunate reason.
But if you don’t get involved in market making, then a large-volume holder can sell off a large number of coins to the market and bring down the price, thereby provoking panic selling by other holders. In this way, even a seemingly promising cryptocurrency can instantly lose the trust of traders, something impossible to win back again. Actually, this cryptocurrency and all the work done to create and promote it can just be discarded.
Market making should be started by coming up with a price management strategy. This strategy directly correlates with the overall game plan of the company that issued the cryptocurrency. If, for example, a stablecoin is issued, then the market making strategy should also be aimed at stabilising the price at a constant value, thereby preventing it from rising too high or falling too low.
When the strategy is ready and your cryptocurrency has been listed on one or more exchanges, you then need to move on to placing buy and sell orders on both sides of the target value. This is called order book alignment. CEXs typically give the creators of a cryptocurrency 1-2 days to align the order book and to secure liquidity. It’s only possible to top up during this period, while actual trading doesn’t occur. To do this, you need to top up the balance of the exchange with all the cryptocurrencies that will participate in trading pairs, and then proceed with alignment.
As soon as free trading opens, many traders will begin to make transactions based on their expectations of further price movements. Some may have managed to buy before the listing, while others didn’t and now want to have time to buy cheaper during open trading. Some will be convinced that this cryptocurrency possesses fantastic prospects, while others will rush to sell, locking in a profit. All of these actions weigh heavily on the price, and most importantly, the mood and confidence of traders.
The free trading market is wild. There, both professional traders and often bots of the exchange owners themselves will play against you, trying to suck out liquidity.
Of course, manually managing the price is unrealistic, especially in terms of large exchanges, so trading bots are used in this process. The effectiveness of market making will directly depend upon the quality of the logic of their work. Often several bots from different trading groups operate within the same trading pair and each one is trying to beat out its competitors.
We develop trading bots and have dedicated a separate page to it, ‘Trading Bot Development.’
That’s why selecting the right team is critical to market making. The team must simultaneously have deep knowledge of trading and experience in development and automation.
The Polygant team completely meets these criteria. Our traders, in close cooperation with developers, have been successfully involved in market making on cryptocurrency markets for over 6 years.