Understanding Liquidity: The Difference Between Market Takers and Market Makers

Every functional trading platform depends on two complementary participant types: those who inject liquidity and those who extract it. The distinction between these roles shapes everything from price discovery to transaction costs. Let’s break down how market maker vs market taker dynamics work and why they matter for exchange health.

The Core Mechanics: Who Does What?

A market taker places an order that executes immediately at the best available price currently on the order book. When you want to buy Bitcoin right now at market price, you’re taking liquidity that another participant has already supplied. This instant execution comes at a cost—takers pay higher fees because they’re consuming existing orders rather than waiting for a match.

A market maker, by contrast, submits buy or sell orders at prices different from the current market rate and simply waits. These resting orders sit in the order book, hoping to be matched by future market takers. Makers collect lower fees as a reward for their patience and for providing the liquidity that keeps the market functioning.

The relationship is symbiotic. Without makers, takers would have nothing to buy or sell into. Without takers, makers would have nowhere to deploy their capital. Together, they create market depth—the volume of orders available at various price levels—which directly impacts the bid-ask spread (the gap between buy and sell prices).

Why This Matters: The Farmer’s Market Parallel

Imagine a farmer’s market where vendors are the market makers and customers are the market takers. Each vendor stocks their stand with produce at their chosen price point—say, selling apples at $2 but willing to buy them for $1. This creates a spread and encourages competition among vendors, narrowing prices as they jostle for customers.

Now a customer arrives wanting to sell a bagful of apples. They don’t negotiate—they simply accept the best offer from any vendor willing to buy. That customer is acting as a market taker, removing apples from the available supply and potentially moving prices upward.

A different customer shows up hunting for deals, seeking to buy two bags at the lowest available price. They’ll snap up the most competitively priced apples first, then move to the next vendor if needed. If demand exceeds supply, prices climb and options shrink.

This same dynamic plays out on exchanges. If you only had one or two market makers providing a hundred orders total, but thousands of traders wanted to execute, the system would collapse under demand. Liquidity would evaporate, spreads would widen, and prices would become unfair. The platform would be unusable.

On-Chain Implementation: How Exchanges Orchestrate This

Modern trading platforms like dYdX use an order book and automatic matching engine to pair makers with takers seamlessly. When you place a maker order, it appears in the public order book where takers can see it. When a taker order arrives, the system matches it against available maker orders, executes the trade, and updates prices in real-time.

Platforms actively encourage market makers through fee incentives. By charging makers lower fees (or even rebates), exchanges reward liquidity provision. Takers, as liquidity extractors, pay higher fees—a straightforward model that aligns incentives with market health.

The result? Narrower bid-ask spreads, faster execution, fairer pricing, and a more attractive experience for all participants. This virtuous cycle benefits the entire ecosystem.

Fee Structures: Rewarding Makers, Charging Takers

On most exchanges, maker fees run significantly lower than taker fees—sometimes even negative (rebates). This structure recognizes that makers perform essential work: they sit and wait, risking that prices move against them, all to provide the liquidity that takers depend on.

Fee schedules often tier based on monthly trading volume. High-volume traders unlock better rates. Some platforms reward specific stakeholders too. For instance, token holders or NFT owners might qualify for additional discounts, creating a benefit for those most committed to the ecosystem. The specifics vary by exchange, but the principle remains: incentivize makers, charge takers fairly.

The Takeaway

Market makers and market takers are the yin and yang of any exchange. Makers supply depth and liquidity at a cost to themselves; takers extract that liquidity instantly at a premium. Neither can thrive without the other. The exchanges that succeed are those that keep this balance healthy—using fee structures, volume rewards, and participation incentives to ensure enough makers stay engaged, spreads stay tight, and the market remains deep and fair for everyone.