How Does a “Market Maker” Profit from the Bid-Ask Spread?
A market maker profits by simultaneously quoting both a bid (buy) price and an ask (sell) price for an asset. They aim to buy at the lower bid price and immediately sell at the higher ask price.
The difference between the two prices, the bid-ask spread, is their profit margin. They profit by providing liquidity and capturing the spread on high-volume transactions.
Glossar
Large Bid-Ask Spread
Indicator ⎊ A large Bid-Ask Spread serves as a direct indicator of poor market liquidity and elevated transaction costs within a specific cryptocurrency derivative or options contract.
Capturing the Spread
Arbitrage ⎊ Capturing the spread, within cryptocurrency derivatives, represents a strategy exploiting temporary price discrepancies for the same asset across different exchanges or derivative contracts.