What Does Maker Mean? The Basic Concept You Need to Know to Pay Lower Fees

The concepts of “maker” and “taker” in cryptocurrency exchanges are not just jargon. Understanding these two concepts is crucial for reducing the commissions you pay and developing smarter trading strategies. So, what exactly does maker mean? Simply put, a maker is a trader who provides liquidity, fills the order books, and offers prices that other buyers and sellers are waiting for.

Limit Order and Market Order: Which Choice Should You Make?

When you enter the exchange interface, you’ll encounter the order book displayed with green and red colors. The market price is located in the middle of these order books. At this point, you need to make a choice: will you trade immediately or wait to trade at your specified price?

When you choose the market order option (trading as a taker), the transaction occurs instantly at the available price. No waiting, fast execution. However, there is a cost: as a taker, you pay higher commissions.

With the limit order option, you set the price yourself. If you want to buy coins, you write a suitable price, and the transaction only occurs when that price is reached. The market buyer (the person using a market order) will then execute the trade at the price you set. This is where the answer to “what does maker mean” comes into play: in this case, you are the maker.

Why Does Being a Maker Result in Lower Commissions?

The main difference between maker and taker is not just speed; the real difference lies in the commission rates. The exchange applies different fees to both sides. Why does such a system exist?

The answer is simple: liquidity. Takers who use market orders are in a hurry and buy at the available price. But where do these available prices come from? From makers. Traders who place limit orders and set prices on the order books provide liquidity to the exchange. The exchange offers discounts to makers for this service. Takers, being in a hurry, pay higher commissions.

Each exchange has its own fee structure. In some exchanges, makers may pay no commission at all, or even receive negative commissions (meaning the exchange pays you). Takers always pay a higher rate. In the long run, those who adopt a maker strategy can save a significant amount on commissions.

Liquidity: The Heart of the Exchange Ecosystem

An exchange is not just an intermediary. In fact, you are directly trading with other people. When you place a limit order and set a price on the order book, another trader executes the trade at your offered price. Similarly, your buy order matches with someone else’s sell order.

This dynamic creates liquidity. Makers (those who use limit orders) provide this liquidity. The more makers there are, the more price levels exist on the order book. Buyers and sellers can trade easily. This increases the overall trading volume of the exchange.

To encourage this liquidity, exchanges often offer discounts to makers. Sometimes makers pay less or even no commissions at all. Some large exchanges may even offer negative commissions to makers. This sustains the maker ecosystem and continuously increases liquidity.

In conclusion, the answer to “what does maker mean” is to define a trader who plays a fundamental role in ensuring efficiency and trading flow on exchanges. If you want to pay lower commissions and develop a long-term strategy, it is wise to use limit orders and act as a maker.