Crypto has plenty of stories, but the order book runs on a basic rule: someone must keep quoting prices so trades can happen immediately. A market maker is a participant who continuously provides two-sided quotes and liquidity, earning spread and managing inventory risk.

For a trader, the practical takeaway is simple: understand where liquidity is real, where spreads and depth are thin, why sudden wicks happen, and why a market order in the wrong moment turns into unnecessary costs.

Terms and boundaries

• Market maker — a liquidity provider quoting bid/ask on a regular basis.
• Liquidity — the ability to trade size with minimal price impact.
• Spread — the difference between best bid and best ask.
• Market depth — the volume available at price levels around the current price.
• Inventory — the position a market maker accumulates as their quotes get filled.
• Inventory risk — the risk price moves against that inventory before hedging.
• Liquidity taking — aggressive orders that “consume” resting liquidity.
• Absorption — heavy trading into a level without the price moving much.
• Iceberg — hidden size that replenishes in smaller visible slices.
• Spoofing — displaying large orders without intent to trade, then pulling them.

How a market maker earns and what they actually control

A market maker doesn’t “move the market at will.” They manage quoting and risk. The basic model is:

• quote bid/ask, earn spread and/or venue incentives
• avoid building a dangerous inventory when flow becomes one-sided
• hedge quickly via derivatives, cross-venue routing, correlated instruments, or systematic quote rebalancing

In calm markets, quoting is tighter: spreads narrow and depth is steadier. When flow turns aggressive and one-directional, the defensive playbook kicks in: spreads widen, displayed size shrinks, quotes step away from price. On the chart this looks like “a hunt,” but in practice it’s often just liquidity becoming expensive under stress.

What a trader should monitor: practical inputs

• Spread in percentage terms and how it changes during price moves.
• Depth near the price and how fast it refills after being consumed.
• Trade flow shape: repeated market hits versus orderly limit fills.
• Slippage on your typical size in calm conditions versus impulse conditions.
• Liquidity gaps: areas where there is “nothing between levels,” so price jumps to the next pocket.
• Stress markers: liquidation cascades, volatility spikes, sudden basis shifts.

The setup is straightforward: define your typical trade size, then test how that size executes in normal conditions and in impulses. If costs blow out in impulses, your execution protocol must become more conservative.

How to read order-book and price behavior without mythology

• Tight spread + stable depth — conditions for cleaner execution.
• Spread expansion during a move — liquidity providers protecting inventory risk.
• Fast depth replenishment at a level — evidence of real quoting support or iceberg behavior.
• Absorption — heavy prints into a level with limited price displacement; often a decision zone.
• Gaps and “level removal” — a sign the nearest real liquidity is farther than it looks.
• Window dressing — large orders appear and disappear without fills; execution discipline matters more than forecasts.

The key rule: where liquidity is unstable, forecasts get worse and execution costs rise. Your playbook should account for that automatically.

Manipulations: what exists and how to treat it

Some practices are prohibited or borderline in many jurisdictions. For a trader, the priority is not legal classification—it’s capital protection through rules.

• Spoofing and order layering: large “walls” appear to shape perception, then get pulled. The tell is minimal real filling at the level and frequent wall reshuffling without prints.
• Sweeping obvious liquidity: price runs into clustered stops and liquidation levels, then snaps back. The tell is a fast break on thin depth and quick reversion once opposing liquidity appears.
• Icebergs and hidden support: a level holds under steady prints while visible depth looks small. The tell is repeated absorption without meaningful price drift.
• Volatility wicks in low-liquidity windows: brief spikes when spreads widen and depth collapses simultaneously.

The traditional approach holds: don’t argue with the tape, don’t invent motives, defend with an execution protocol and hard risk limits.

Case: October 10, 2025 — liquidation cascade and liquidity failure

On October 10–11, 2025, the market saw the largest liquidation wave on record: estimates around $19B of forced liquidations, sharp drops, and material liquidity dislocations.

Most post-mortems converge on three drivers:

• A macro trigger pushed a broad risk-off move into a highly leveraged market.
• High leverage created a reflexive cascade: liquidations forced selling, which triggered more liquidations.
• Liquidity deteriorated under stress: providers reduced quoting, spreads widened, and price travelled quickly to the next real depth pockets.

At the same time, accusations circulated targeting specific venues and participants. Wintermute’s public response rejected “single culprit” framing and described the event as a flash crash in a heavily leveraged market during illiquid hours, driven by macro news.

The practical conclusion is straightforward: in those windows, a “correct forecast” doesn’t save you. A protocol does—size, order type, slippage limits, and a predefined stop point.

Core discipline rules

• In thin liquidity, prioritize execution quality over “perfect entry precision.”
• Use market orders only when speed is worth the cost and risk is quantified.
• Limit orders are the default tool in stable conditions.
• In impulses, reduce size, tighten risk, and predefine the exit plan.
• Don’t build a plan on “price must revert” after a wick—markets don’t owe reversion.
• During liquidation cascades, the goal is controllability, not “catching the whole move.”

Common mistakes

• Hitting market into widening spreads and collapsing depth.
• Trading “walls” without verifying real fills.
• Upsizing precisely when liquidity is clearly fragile.
• Trying to “ride out” slippage by averaging entries without a plan.
• Mixing regimes: what works in calm conditions fails in impulse conditions.

Operating playbook: before / during / after

• Before the trade: measure spread and depth on your typical size, classify regime (stable vs impulse), select execution (limit vs market), set maximum acceptable slippage and the invalidation point.
• During the trade: when spreads widen and the book hollows out, cut size and avoid chasing; monitor actual fill prices; do not dilute risk via repeated partial adds without a predefined structure.
• After the trade: compare expected vs actual execution, quantify the execution cost, record liquidity conditions, update instrument- and time-of-day-specific rules.

Mini-cases

• Case 1: news/launch, thin book. Spreads widen, depth disappears, price runs in steps. Action: reduce size, avoid chasing, use limits where possible, keep invalidation rules tight.
• Case 2: range, level held via absorption. Prints keep coming but price doesn’t move. Action: wait for confirmation of range resolution rather than guessing “who wins.”
• Case 3: break through a gap, no refill. Price clears multiple levels fast. Action: don’t “catch the knife” with market orders; trade only after depth stabilizes and within predefined risk rules.

FAQ

• Do market makers move price on purpose? Their responsibility is quoting and inventory risk management. In stress, price often moves because flow becomes one-sided and liquidations cascade—not because of a “button.”
• How do they make money? Spread, venue incentives, and efficient hedging/arbitrage under strict risk control.
• How do you tell real liquidity from window dressing? Watch fills and behavior: does the level trade, does depth refill, what happens to the spread under pressure.
• Why does slippage spike in impulses? Liquidity becomes expensive: spreads widen, quoting thins, and price jumps between levels.
• How does a trader protect themselves? Fix an execution protocol, cap slippage, reduce size in fragile liquidity, and don’t replace the plan with emotion.

To monitor liquidity regime and execution discipline, screeners are practical tools: they help track spread, depth, and sudden regime shifts, and they enforce an entry/exit protocol. Crypto-Resources includes both paid and free tools, plus demo trading bots testing , so the process can be validated without pressure on capital.

Conclusion

Market makers are execution infrastructure. In calm conditions they make trading smoother; in stress they defend risk, and liquidity can vanish quickly. Traders benefit from thinking in costs, not villains: where the spread and depth allow clean execution, and where the market requires reduced activity.

A stable approach is a playbook that reacts to order-book regime: in stable phases, cleaner limit execution; in impulses, smaller size, tighter risk, and strict slippage control. That preserves capital when most losses come from execution and discipline rather than direction.

Risks

This material is for informational purposes only and is not an individual investment recommendation. Crypto markets are volatile, and substantial capital losses are possible. Any decisions should be made only within your own risk management rules.