Market maker
Who is on the other side of your trade, and how do they make money from it?
In plain words
A market maker continuously offers to both buy and sell the same asset, quoting a bid price and an ask price a small distance apart. The gap between them is the spread, and the maker keeps that difference on trades it fills.
Why it matters
The spread is a cost built into every trade, and it moves with risk. When prices swing sharply, makers widen their spreads or quote smaller sizes to protect themselves, so entering and leaving positions becomes more expensive exactly when markets are unsettled.
In a real week: ETH, week of 23 November 2020
In the week of 23 November 2020, ETH ranged 29.52% between a high of 623.0 on Tuesday at 08:00 UTC and a low of 481.0 on Thursday at 17:00 UTC, with realised volatility of 107.7% a year and a largest single hourly move of 4.46%. Dollar volume reached 5.81bn, 2.19 times its prior 12-week average, so the market absorbed heavy turnover across those swings.
A common mistake
Assuming the spread is a fixed fee. It is quoted trade by trade and typically stretches during fast or wide-ranging markets, so the same trade can cost very different amounts on different days.