What are market makers? 

Market makers are entities or individuals that provide liquidity to the market by placing buy and sell orders. They create a market for a particular asset by continuously offering to buy (bid) and sell (ask) at specified prices. 

Market makers help ensure that there is enough liquidity in the market for it to function smoothly, making it easier for other traders to buy and sell assets without significant price fluctuations. They typically maintain a presence in the order book with multiple orders at various price levels to facilitate trading. 

What are market takers? 

Market takers are traders or investors who place orders that match existing orders in the market. They ‘take’ the available liquidity by executing trades against the orders placed by market makers or other market participants. 

When a market taker places a market order, it’s executed immediately at the best available price, which may be higher or lower than their desired price depending on market conditions. 

Market takers have less control over the execution price compared to market makers, especially in volatile markets. 

For example:  

A market maker places a limit order to buy Bitcoin at $30,000 and another limit order to sell Bitcoin at $30,200 when the Bitcoin market price is $30,100. By doing so, they are providing liquidity to both buyers and sellers in that price range. 

If a trader wants to buy Bitcoin immediately and places a market order, they will buy from the market maker's sell order at $30,200. This trader is considered a market taker because they are taking liquidity from the market.

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