Market Makers vs Underwriters

Market makers in the cryptocurrency market and underwriters in the stock market operate in different contexts and fulfill distinct roles. Let’s examine their activities and highlight the differences:

1️⃣ Primary Function:
Market Makers (Cryptocurrency Market): Their main objective is to provide liquidity by setting bid and ask prices for assets. They earn profits from the spread — the difference between buying and selling prices.
Underwriters (Stock Market): Their primary function involves facilitating the initial issuance of stocks (IPO) or bonds. Underwriters purchase new securities from the company and then sell them to investors.

2️⃣ Risk:
Market Makers: Risk of loss from unsuccessful trades due to market volatility.
Underwriters: Risk of not being able to sell the entire batch of new stocks or bonds at the proposed price.

3️⃣ Duration of Involvement:
Market Makers: Typically work in the market continuously, setting quotes.
Underwriters: Interact with the company temporarily, usually during IPOs or bond issuances.

4️⃣ Regulation:
Market Makers: Cryptocurrency markets are generally less regulated in most countries compared to stock markets.
Underwriters: Strictly regulated by financial authorities and must adhere to numerous requirements.

5️⃣ Tools and Infrastructure:
Market Makers: Use bots and algorithmic trading to automate their operations.
Underwriters: Rely on financial models, analytical reports, and industry connections for successful asset placements.

6️⃣ Client Relationships:
Market Makers: Usually do not have direct relationships with end clients.
Underwriters: Work directly with companies seeking to conduct IPOs or issue bonds, assisting them throughout the process.

In conclusion, market makers in the cryptocurrency market and underwriters in the stock market engage in different aspects of financial activities. Market makers ensure liquidity and price stability, while underwriters help companies raise capital in the public market.