There’s often a misconception amongst crypto traders that market makers are in the business of price manipulation. The intent of this post is to show people the clear distinction between market makers vs market movers.
Market makers are traders who provide liquidity on an exchange by simultaneously stacking buy and sell orders on the books. They often use automated trading algorithms and profit off of the price spread.
Large market makers tend to have a special relationship with the exchanges and often get discounts or compensation. Providing liquidity is an integral service to traders.
Just to be clear, true market makers only add orders to the books and do not manipulate price by buying and selling into other people’s orders.
Exchanges need market makers to attract traders. Healthy order books are necessary to reduce slippage. Exchanges that have good market makers create a network effect of attracting more traders, which can turn these exchanges into market movers.
Market movers are traders or exchanges that can influence the price and control trends. There are different market movers with a wide variety of strategies that can influence price action.
Here are a few of the players that can move the markets.
There are many different crypto exchanges but usually only a handful have real influence over the markets. Generally speaking, the more trading volume an exchange has, the greater its influence.
Chinese exchanges like OKCoin and Huobi are bitcoin market movers because they’ve steered many trends. There’s reason to believe that these zero fees exchanges are engaged in volume manipulation through wash trading algorithms.
Although many traders know about their potentially fake volume stats, these exchanges still successfully drive trends by taking a price lead that can go as high as 10% over the USD markets.
Anyone with a sizeable trading portfolio can influence the price by taking orders off the books at key times. Most traders follow the same set of rules for technical analysis and whales can use this information to their advantage.
One of the most common ways to start a trend is by creating momentum through stop order hunting. Whales know that if they push price just past the point of support or resistance they’ll trigger enough stop orders, which increases volume and can cause a chain reaction.
Once the price breaks support or resistance, other traders step in which adds to the momentum. Traders that are over-leveraged can also add fuel to the fire by having their accounts liquidated. Liquidated shorts need to buy back their coins and liquidated longs need to sell their coins.
Illiquid altcoin markets are often influenced by pump and dump groups. Usually a ringleader forms a group of people that pump the markets by buying up all the sell orders off of the books. Once the pump hits a peak, these same traders race each other to the bottom by dumping all their coins.
Pump and dump groups are a game of hot potato where everyone in the group competes against each other. The majority of participants lose money and the only person guaranteed to win is the ringleader. Usually the leader pre-stacks the order book ahead of time and gets their followers to pump the price and buy into their orders.
Pump and dump groups are pure scams where you need to pay high fees for the privilege of getting fleeced. It’s best to avoid these groups like the plague.
The crypto markets are highly susceptible to FOMO during new tech releases. Developers are the leaders of crypto projects and can have great influence over the price. Most devs are market movers because they create the news. Business leaders and influential investors also tend to move the markets.
Note: Some traders use a hybrid approach of both market making and moving.