##### Hello Steemians,
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<center>**Number 1**</center>
> Define the concept of Market Making in your own words.
Let me start by telling us that the concept of **Market Making** is simply about placing **bid/ask** orders, making profits and then adjusting the orders as the market moves in respect to the liquidity provided.
So, market making refers to the act of trading stocks/shares, and the basic concept is that market makers will choose to buy lower and sell higher.
In cryptocurrency exchanges, we now have machines that helps in placing orders on the **order book,** and automatically adjusting the orders as the market moves, as well as making profits from the spread. And it's basically about buying low and selling high.
The role a **market maker** plays in the order book is **creating and canceling of orders,** with the aim of **providing liquidity** to the market. In most cases, they are usually a great number of market makers in an exchange, and together they help to keep the market liquid and busy.
<center>**Number 2**</center>
> Explain the psychology behind Market Maker
Before I continue, let me tell us who a market maker is. A market maker can be a person or group of persons that constantly provides liquidity to the market by placing lots of **ask and bid orders,** and they are willing to make little profits by repeatedly buying low and selling high. This means lots of profits could be made by a market maker through the **bid-ask spread.**
<center>*Designed by me using iMarkup*</center>
As you can see on the image above, you would discover that the market makers makes profits from the differences between the bid and ask prices.
So let's talk about the psychology behind this market makers. And the psychology here is that the market makers are in control of the amount of cryptocurrencies that are circulating the market by placing orders that would correspond in the nearest future. This market makers usually holds huge amounts of assets, and they supply liquidity in an order book for their profit purposes. Below is an example of how the market markers operates.
<center>*Screenshot from my Binance exchange account*</center>
For instance, the current price of a TRX/USDT is **$0.09667,** and a rumour starts circulating that the current price of TRX will increase in no distance time. Lots of traders will start rushing into the market to place their orders.
So, after knowing how the market will go, the market makers role here will be to set the price at let's say **$0.09700,** but because of the constant demand, the price of the asset will have to reduce to let's say **$0.09672.** So the market maker will immediately have to sell his asset at **$0.09700,** and resupplies it when it gets to **$0.09672,** making profits of **$0.00028** per TRX. So the idea here is that market makers usually finds a way of placing bid/ask orders, making little profits, and adjusting the order as the market moves.
<center>**Number 3**</center>
> Explain the benefits of Market Maker Concept?
Market makers plays very important roles in market, and as such the benefits of the market maker concepts are really huge. Below are some benefits of the market maker concept.
- The first thing I want to pick out here, which is also the most important aspect of a market making concept is that **they can provide an illiquid market with the much needed liquidity.** In cases, where a market doesn't have the necessary liquidity, it is most likely to dry up and crash, but with the involvement of a market maker the market will remain liquid and busy.
- Market makers can help investors achieve their profit targets because they usually ensures that investors enter and exit the trade with ease.
- The market makers helps in tightening the **bid-ask spread** of an asset, and this is good because an asset with so much wide **bid-ask spread** is likely to crash in its operation.
- A good number of market makers can attract so many investors into a particular exchange, because the greater the market makers, the greater the liquidity provided which usually results to investors getting hold of more buy and sell positions.
<center>**Number 4**</center>
> Explain the disadvantages of Market Maker Concept?
In as much as they are some benefits attached to the market maker concept, they are disadvantages regarding the concept. So below are the disadvantages of the market maker concept.
- Some liquidity provided by most market markers are not genuine. In most cases maker makers are profit driven, and if investors are not careful enough they might lose all their assets to this market makers.
- Market makers usually go against the trades of investors because they find a way to manipulate the prices, whereby causing investors not to reach their profit targets.
- The market makers are usually humans that privately have all the necessary details that could help them perform inner trading. So a market maker can decides to make profit in an unethical manner which could be bad for the investors.
<center>**Number 5**</center>
> Explain any two indicators that are used in the Market Maker Concept and explore them through charts.
Just like our professor has said, there are various indicators that can be used in the market maker concept, and I would like to work with two of such Indicators **(TDI and Moving Average).**
##### TDI Indicator
<center>*
Screenshot from my [tradingview account](https://www.tradingview.com/chart/ylljIm4z/)*</center>
The TDI is basically made up of 3 major lines levels, and they Includes **the upper line (68),** **mid line (50),** and **the lower line (32).** The TDI lines are made up of the following:
- **Volatility Bands:** Whenever these bands are contracting together, it simply means that price is moving in a tight zone. But whenever these bands expands, it means that prices are currently taking a huge swing.
- **The middle line:** Sometimes referred to as the yellow line is regarded as the market sentiment, and that's where the overall market direction is going. If the line is above the 50, it means that people are buying more than they are selling. And if the line is below the 50, it means that people are selling more than they are buying. Above 68 and below 32 signifies overbought and oversold respectively.
- **The green line:** The green line here refers to the current price sentiment, meaning that this line detects the as it's happening on the chart.
- **The red line:** This refers to the signal line, and we use it to get our confirmations on how to have a trade setup.
It is true that alot of people tends to use the TDI as a tool for confirmation of what they think might be happening in the market. So market makers work with this Indicator in order to find ways to manipulate the market for their profit purposes.
<center>
*Screenshot from my [tradingview account](https://www.tradingview.com/chart/ylljIm4z/)*</center>
So above is a **LTC/USD** pair with the TDI Indicator. As you can see, the market makers initially wanted a selling liquidity, so they had to push down the market to the extend of causing the **green price line** to **cross-below** the **blue band.** The market sentiment (yellow line) was equally below 50. So with all this signals, it was clear to most investors that the market was heading for a huge downtrend, and as such they would have to sell their coins.
So with the great selling liquidity produced due to the current selling pressure, the market makers would now buy the coins in large quantity, which would cause the price to later increase as seen in the screenshot above.
##### Moving Average
Here is another indicator called the moving average, and it can consist of two lines. In the case of my example, the brown line is the 50-day MA, while the blue line is the 200-day MA. The combination of this two MA lines usually produces a strategy that is widely used by alot of traders, and it's called **The Golden/Death Cross.**
**A golden cross** is when traders tends to buy because it signifies that a bullish run is coming. And this golden cross usually occurs when the 50-day MA crosses-above the 200-day MA to the top.
**A death cross:** is when traders tends to sell because it signifies that a bearish run is coming. And this death cross usually occurs when the 50-day MA crosses-below the 200-day MA to the bottom.
<center>
*Screenshot from my [tradingview account](https://www.tradingview.com/chart/ylljIm4z/)*</center>
So as you can see on the screenshot above, the Moving Average (MA) has been added to my **ETH/USD** pair. Here the market markers are looking for a selling liquidity, so they had to manipulate the market by pushing down the market to the extend of causing 50-day MA to cross-below the 200-day MA, which would make alot of investors to start selling their coins. There's no doubt that they would be great selling liquidity because of the high selling pressure. And the market makers would now buy the coins in large quantity whereby causing the price to increase as they make their profits.
##### Conclusion
Market makers are basically necessary in a market that aims to perform effectively, because if a market is illiquid, it won't work effectively. Although there are some disadvantages regarding the concept, the fact remains that they are very important in every exchange market.
So we ought to know how the market makers can manipulate a market, so as to be careful when trading.
Generally, I find this lecture very educative and important, and am grateful to Prof. @reddileep for bringing this topic to us this week.
##### Thank you for your time.