How liquidity affects trading centers?
The liquidity concerning the trading system refers to the ability of the trading center to exchange a trader’s assets, with another asset. Suppose a trader intends to buy or sell some assets through the trading system and if the trade center is not able to buy or sell the trader’s assets with a reduced price, then the trade center has less liquidity, where else the trader will not be satisfied with a trading system, with less liquidity.
The trading center must offer enough liquidity, with profitable pricing, so that it attracts more traders who have varying liquidity needs. When the trade center is suffering from lesser liquidity, it will either have high pricing for the buyers or low pricing for sellers, thereby leaving an unsatisfactory feeling for the traders. Also, this consumes a large portion of the transaction book, for a single transaction.
When the trade center has high liquidity, the transactions can be made quickly, before eating up the most portion of the transaction book, giving a happy and fulfilled feeling to the customers who buy or sell the assets. Liquidity is an important aspect of both the traditional financial system and crypto-currency system. Hence, therefore, the stock exchanges make a partnership with in-house liquidity providers, where they help the trade center, to buy or sell the assets for another asset, with high profits for both the sellers and buyers.
With an increasing crypto-currency financial system, the trade centers can offer high liquidity for the buyers or sellers as they desire. There are three different liquidity options namely, liquidity mining, third-party market maker, and cross-exchange market making. These liquidity solutions, upon collaboration with various amounts and operational capacity, there is no need to face, one-size-fits-all policy.
The concept of a two-sided market merging, as it paves way for widespread monetary enclosure across the marketplace. This is a perfect win-win strategy for both the buyers and sellers. Examples of two-sided markets include eBay, Uber, Fiverr, and Airbnb. They are all expected to reach the revenue above $40 by 2022. Google’s AdSense provides immense advantages, to both buyers and sellers, leading to the development of industry-leading business. More than 11 million websites have become the sellers of AdSense. In the year 2019, the total revenue for AdSense is $134.8 billion. As Google has offered the required space for advertising, that too in high-traffic websites, the buyers were able to place higher buds, high advertisement sales, and more number of advertisements.
With the help of AdSense, the sellers with the help of vast selling space, they were able to advertise on all the websites with higher profits. In addition to that, AdWords has helped many small scale businesses, to sell their products that can be accessed easily, fatly, and high profits. Without this, sellers and buyers need to take the help of media buyers, TV, radio, or prints to make the advertisement reach the buyers and sellers at an affordable price.
Market fragmentation
Among all cryptocurrencies, Bitcoin usage has been increasing tremendously as it enables the traders to deal with each other, directly. The most attractive feature of this is the bitcoin transactions are based on blockchain technology. Because of this, the transaction can be made transparent, with high security and free from anonymous users. In blockchain technology, every transaction is kept as blocks and given a highly encrypted hash code and then added to the blockchains. As a result, there will not be any tampering of transactions.
Bitcoin has reached revenue of $200 billion just within a few decades. After Bitcoins, numerous cryptocurrencies arose, and hence the process of digital transaction of assets arose. As a result of numerous novel exchanges, there was market fragmentation. As a result, the liquidity of the trade centers got affected; thereby the buyers and sellers need to face the challenging situation of high buying price and less selling price. The transaction speed has also decreased. This is the very challenging scenario of crypto-currency advancement, which had a severe setback in the liquidity of the trade centers.
Two-sided market-making platform
With the advancement in cryptocurrency trading, more number of exchanges and more number of traders are arising exponentially. As a result, there is a high demand for liquidity. The only solution to this problem is a two-sided market-making platform. In this platform, the cryptocurrency exchanges rely on the market-makers, who entrust the buying and selling prices, which are already chosen. As a result, the client-side exchange could benefit from high liquidity. It is in the hands of liquidity contributors to offer with the committed buying and selling price. The payments market-makers may have high payments, as they make crypto-currency exchange with less buying price and high selling rate.
The market-makers apart from the need for capital may require advanced technology and expertise in trading, for making this type of transaction possible. Though the two-sided market place is much desired by small-scale traders, they sometimes fail due to less capital, less trading volume, and lack of trading experts.
A two-sided market-making platform commits in making digital transactions to a particular exchange and dealing pairs by enabling both small-scale and large-scale traders. The exchanges are bid by paying capital to the market-making place. On the inclusion of qualified and intelligent trade, the market-making platform can be extended to a greater extent.
Transformation in market-making
In the market-making transformation, the 2-sided platform might connect the retail investors with the digital asset exchange and assets pair, to enable high liquidity. With the provided list of digital exchange and marker rewards, the retail investors could be able to offer funds to the market-making account, thereby allocating the funds to the digital asset exchange and choose the desired trading pair. With increasing liquidity of exchanges, the clients could benefit from less buying price and the high selling price if assets attract more traders and as a result, could create good market value and growth.
In the cross-exchange market making, the traders can turn into a market maker, which makes the trading centers to offer high liquidity, without any precise losses. In this category, the operators at the trading center act as a market-maker, at their own-trade center. So, they can take the role of market exchange at their center as well as market takers. As a market-exchange, they do have their liquidity providers, who commit placing the bid with reasonable buying and selling price. With the help of these bids and, the operators of the trade center, fix their market-making condition, at their center.
Using the cross-exchange allows the operators at the trade center to offer liquidity without the need to pay the third party. But they do face some, capital competence issues. An operator, who is taking part in the cross-exchange, must keep track of their inventory from accessing the credit cards, which makes them difficult, as they will not be able to use the capital for any other profit-generating purpose.
With the help 0f two-sided market-making platforms, the traders or investors could be transformed into the market maker, very easily and quickly. This will make a bright future for the digital asset transformation with high liquidity. With high liquidity, the buyers can buy at a low price and sellers can sell at a high price.
