Yellow Capital Blog/Crypto Market Making/How to Become a Crypto Market Maker

How to Become a Crypto Market Maker

Tuesday, April 25, 2023

Cryptocurrency market makers are essential for active traders as they ensure enough liquidity in the market and that orders are quickly processed. By offering their services, market makers can profit from the price difference between each trade.
Cryptocurrencies are constantly evolving, and the market is becoming more similar to traditional stocks, commodities, and foreign exchange markets. Market makers can be individuals or institutions that place bid and ask limit orders for a specific digital asset, which helps maintain liquidity and smooth operation of the crypto markets.
To become a market maker, read about the necessary steps.

  • ​Profit-driven Crypto market makers: these individuals or institutions carry out their operations by using their cryptocurrency as capital.
  • ​Designated Crypto market makers: Some institutions or individuals utilize their customers' cryptocurrency as capital for trading.

How to Become a Crypto Market Maker?

Understanding crypto market making is just the first step if you want to become a crypto market maker. There are a few essential steps to follow, and they are listed below:

1. Apply for a crypto exchange platform's market making program.
2. Trade frequently to provide liquidity.
3. Opt-in for training and education offered by the exchange to meet the requirements to become a market maker.
4. Partner with a crypto market maker such as Yellow Capital or purchase market-making software that automates the process.

Many exchanges require maintaining a minimum net capital to become a market maker. While some exchanges require their market makers to hold up to $250,000, the amount may vary depending on the exchange or project.

Cryptocurrency projects in their Initial Coin Offering (ICO) stages that are yet to go mainstream now employ the services of professional crypto market makers to create liquidity for their tokens.

How Does Crypto Market Making Work?

When you want to buy a cryptocurrency like XYZ for a specific amount, say $1,000, you must find someone willing to sell it for that price. However, you'll likely find a seller at a different time than you want. This is where crypto market makers come in. They act as intermediaries between buyers and sellers, filling the gap and making transactions faster.

When the amount of cryptocurrency you want to buy or sell is too large for a single market maker to handle, the exchange allows multiple market makers to quote their prices on the order. Crypto market makers profit by charging a spread, the difference between the bid and offer price. They buy a cryptocurrency for less than the current price and sell it for more, and the difference is their profit.

For example, a market maker charges a spread of $0.08 on XYZ. If you want to buy $1,000 worth of XYZ, the market maker will offer to sell it to you for $1,000.4. On the other hand, if you want to sell XYZ tokens to the market maker, they will offer to buy them from you for $999.6. This price difference is how market makers make their profits.

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What are Crypto Market Making Services?

Crypto market makers provide essential services in the cryptocurrency ecosystem, including:

1. Automated cryptocurrency trading: With market makers, crypto investors can start automated trading on exchanges to provide liquidity to the market and ensure stable pricing. This is because market makers are always available to buy or sell any crypto, regardless of the volume, reducing the wait time for investors to find someone willing to buy/sell the amount they have to sell/buy.

2. Hotlink Orders: Crypto market makers ensure that you can stream more liquidity for your digital asset exchange from any third-party exchanges like Binance, Coinbase, Huobi, Bitfinex, or any other liquidity provider of your choice through configurable API endpoints.

3. Providing Consistent Spread: Market makers enable tighter spreads and incentivize trading among retail traders, making trading more accessible and affordable.

4. Aggregate Order Books: Market makers combine the bid-ask orders on an exchange platform with the crypto available at a specific price from third-party liquidity providers. This results in a more efficient market and better pricing for investors.

Summarizing Crypto Market Making

Market making is a beneficial practice that helps stabilize both cryptocurrency and traditional markets. Crypto market making is the most reliable way to regulate the cryptocurrency market. Crypto market makers provide liquidity, allowing them to make a healthy profit. If you're considering becoming a market maker yourself, there are a few steps you'll have to take when working with exchanges. However, plenty of documentation and on-site assistance are available to help guide you through the process.

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Hi, I am Alexis Yellow

Chairman of Yellow Capital

Are you ready for a wild career transition? I went from launching rockets into outer space at the European Space Center to helping Token Issuers launch their Crypto Projects!

Yellow Capital provides advisory services, strategic investments, and prime crypto market making.

Join me on this journey as I share my experiences and expertise in the crypto world, and maybe we'll even launch a few successful projects together!

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Our investment strategy involves providing deep liquidity crypto market making to the projects we invest in. This approach allows us to ensure continuous and substantial liquidity in exchanges. By doing so, we aim to increase market efficiency and reduce price volatility. We help to stabilize prices and reduce the bid-ask spread, which can lower transaction costs for traders. This usually attracts more traders to the markets, by making it easier and less risky to trade your token which can help to increase the overall liquidity and trading volumes both for the benefit of traders and issuers. However, we recognize that providing liquidity also comes with potential risks, which we carefully evaluate and manage as part of our investment decision-making process.