In the world of trading, a market taker is someone who accepts the current market price of a financial instrument. Essentially, they ‘take’ the prices that ‘makers’ set.
Here’s a little more context:
- Market Order: Market takers usually execute market orders. A market order is a type of order to buy or sell a security immediately at the best available current price.
- Liquidity: Market takers contribute to the liquidity of the market. Liquidity refers to how quickly and easily a security can be bought or sold without significantly affecting the security’s price.
- Market Makers vs Market Takers: This contrasts with market makers, who provide liquidity to the market by placing limit orders on the order book, effectively ‘making’ the market. Market takers, on the other hand, consume the liquidity by placing orders that get filled immediately against an existing order on the order book.
- Fees: Exchanges often charge different fees for market makers and market takers. Market takers typically pay a higher fee because they are consuming the market’s liquidity, while market makers are often incentivized with lower fees or even rebates, as they contribute to the market’s liquidity.
In conclusion, a market taker is a trader who buys or sells securities at the current market price, which is determined by the standing limit orders on the exchange’s order book.