Price Formation Basics: Takers and Makers

When you open an exchange for the first time, you see charts, prices, volumes, percentages and dozens of other indicators. The interface can give the impression that the market is a complex system that can only be understood after studying many indicators.

But trading on an exchange with an order book rests on a simple process: some participants place offers to buy or sell, and others accept these offers.

To understand how the price is formed, let's start with an ordinary city market.

From a city market to an exchange

Imagine a market in the middle of a city. It has stalls, shops and small kiosks.

Each has their own prices and available volumes. Visitors walk between the stalls, compare offers and choose the ones that suit them. Some came to buy apples, others to sell their own harvest.

In such a model, finding the best offer takes time. You can pay more simply because you do not know that the same goods are sold cheaper at the other end of the market.

Now imagine that the market administration has organised the trading:

1. Separated the offers by product.
2. Collected information on buying and selling prices and volumes.
3. Arranged the offers from best to worst.
4. Started automatically directing buyers to the cheapest sellers, and sellers to the buyers with the highest price.

That is the basis of an exchange mechanism.

Digital technology makes it possible to do this remotely: participants send orders, and the exchange matches them according to set rules.

What an order book is

An order book is an ordered list of active buy and sell orders for a specific instrument.

Each order has two main parameters:

• the price at which the participant is ready to trade;
• the volume they want to buy or sell.

An order book has two sides:

Side	Orders it contains	Best offer
Bid	Buy orders	The highest buy price
Ask	Sell orders	The lowest sell price

If you want to buy immediately, execution starts with the best available sellers' offers — ask. If you want to sell immediately — with the best buyers' offers, bid.

In the city market analogy:

• ask — stalls that sell goods;
• bid — stalls that buy them up.

The order book shows which offers are available now. These are what a participant interacts with when sending an order for an immediate purchase or sale.

Who makers are

A maker is a participant whose order is placed in the order book and waits for a matching counter-order, providing liquidity to other participants.

For example, the cheapest sell offers are currently at 101 USDT.

“Buying 50 coins at 100 USDT”

None of the current sellers offers that price. So your order stays in the order book and waits for a participant ready to sell you the asset.

You act as a maker: you create an offer that others can use.

Similarly, you can place a sell order above the current best buy price. If there is no immediate matching execution, it too will stay in the order book.

A maker can be either a buyer or a seller. Their role is defined by the fact that they provide an order for a future trade.

In our analogy, makers are the stall owners who have set prices and volumes for buying or selling and are waiting for visitors.

Who takers are

A taker is a participant who executes a trade against orders that are already available and takes liquidity from the order book.

For example, someone has placed a sale of 10 coins at 101 USDT. You agree to buy them at that price.

In this trade:

• the seller whose order was waiting to be executed is the maker;
• you, who executed their offer, are the taker.

A taker can also be either a buyer or a seller. If you sell against a waiting buyer's order, you take liquidity from the bid side.

In the market analogy, takers are visitors who come up to the stalls and trade at the posted prices.

The same trader can be a maker in one trade and a taker in another.

A limit order does not always make you a maker

A limit order sets a limit price: the maximum for a purchase or the minimum for a sale. But it does not necessarily stay in the order book.

If the best sell price is 101 USDT and you send a limit buy at 102 USDT, the order can be executed immediately against available offers no higher than your limit. In that part of the execution you will be a taker.

If an unfilled remainder of the order stays in the order book, it can act as the maker part when it is executed later.

So the distinction is simple:

• an order waiting to be executed in the order book provides liquidity;
• an order executed against offers that are already waiting takes liquidity.

To place a maker-only order, many exchanges offer a Post Only mode.

What liquidity is

Liquidity is a property of an asset that describes how quickly it can be bought or sold in the required volume without a significant change in the market price.

A highly liquid asset is easy to exchange: there are enough counter-offers in the market to execute a trade without a noticeable deterioration in price.

With low liquidity, buying or selling the same volume may require a larger price concession or waiting for a suitable counterparty.

At the same time, liquidity depends on the specific market and current conditions. The same asset can be highly liquid on one exchange and illiquid on another.

How liquidity relates to the order book

The order book shows the available buy and sell offers. By placing waiting orders, makers provide liquidity: the opportunity for other participants to trade at the stated prices.

What matters is not only the total number of orders, but also what volumes are close to the current prices.

Imagine two markets:

• in the first, thousands of coins are available near the best price;
• in the second, only a few coins, and the next offers are much further away.

The same purchase may barely change the price in the first market, while in the second it may go through several levels and be executed noticeably more expensively.

So liquidity is assessed relative to the volume of the intended trade. Volume that is enough for a small lot may not be enough for a large one.

How trades change the price

Let's walk through a sequential example. A hypothetical asset is traded; all prices are in USDT, volumes are in coins.

For clarity, we assume that between the events described nobody changes their orders except the participants in our example.

The initial order book

The best seller offers 101 USDT. The best buyer is ready to pay 100 USDT.

101 − 100 = 1 USDT

This is the difference between the best bid and ask within one market. It should not be confused with the cross-exchange spread, which compares prices on different venues.

The first taker buys

A buyer arrives and wants to buy 3 coins immediately.

The best sell offer is 101 USDT, with 5 coins available.

3 × 101 = 303 USDT

After the trade:

• the last price becomes 101 USDT;
• 2 coins remain in the sell orders at 101 USDT;
• the best bid and ask do not change.

The trade took place, but the volume of the best sell offer has not run out yet.

The second taker sells

The next participant wants to sell 4 coins immediately.

The best buy order is at 100 USDT.

4 × 100 = 400 USDT

After the trade:

• the last price becomes 100 USDT;
• 6 coins remain at the 100 USDT bid level.

The last price fell from 101 to 100 USDT. Yet the best offers in the order book stayed the same. The trade price simply moved from the ask side to the bid side.

Not every change in the last price means that participants have changed their offers.

The third taker buys a large volume

Now a participant arrives who wants to buy 25 coins.

Only 2 coins are left at 101 USDT.

Execution price	Volume bought	Amount
101 USDT	2 coins	202 USDT
102 USDT	10 coins	1,020 USDT
103 USDT	13 coins	1,339 USDT
Total	25 coins	2,561 USDT

2,561 ÷ 25 = 102.44 USDT

The last part of the purchase was executed at 103 USDT, so the last price became 103 USDT.

At this level, 7 coins remain for sale. The cheaper offers were filled completely.

One taker order went through several levels. There was not enough volume at the best prices, so the rest had to be bought at higher prices.

A maker adds a large buy order

“Buying 100 coins at 102.50 USDT”

The best sellers' offer is now 103 USDT. There is no immediate execution, so the new order stays in the order book.

Now:

• the best bid is 102.50 USDT;
• the best ask is 103 USDT;
• the last price is still 103 USDT.

There was no new trade, but market conditions changed. A large buyer appeared, ready to take volume at a level well above the previous orders at 100 USDT.

The fourth taker sells the same large volume

The next participant sells 25 coins — as many as the previous large taker bought.

But now an order to buy 100 coins is available at 102.50 USDT.

25 × 102.50 = 2,562.50 USDT

After the trade:

• the last price becomes 102.50 USDT;
• 75 coins remain in the large buy order.

The price did not return to the previous level of 100 USDT. It did not need to: the new buyer took the whole volume sold at 102.50 USDT.

The same volume of buying and selling can affect the price differently, because the counter-liquidity differs.

What role makers and takers play

Makers form the offers against which trades can take place. Their orders determine what volume can be executed at each level.

Takers execute these offers. If a taker order's volume exceeds the liquidity available at the best level, execution moves on to the next one.

So a trade's impact on the price depends on two components: the volume to be executed and the volume of counter-orders at the available prices.

A large maker order can hold back price movement: counter-orders will be executed at one level until its volume runs out. But it is not a permanent barrier — the order can be filled, reduced or cancelled.

Makers also influence market conditions without trading. They can post a better price, remove the nearest offers or move volume further away. This changes the best bid and ask and the terms of the next execution.

Where the last price and the chart come from

Every participant can propose their own price. But an offer becomes a trade price only when a matching order is found and an execution takes place.

The last price is the price of the most recent trade. It is not the average price of all orders or the result of a separate calculation by the exchange.

A regular trade chart collects the history of such executions. For example, a candle shows the first, highest, lowest and last trade prices over the chosen period.

So:

• the order book shows the offers available now;
• the trade feed shows the executions that took place;
• the chart shows the history of these executions in the chosen form.

On futures markets, an index price and a mark price may be displayed separately. They are calculated by the venue's rules and are not the same as the last trade price.

The price is formed by the interaction of makers' offers and takers' actions. The exchange organises this process and records the result of each execution.

Why this matters for arbitrage

The last price shows the result of a past trade. It does not answer the question of at what price you will be able to open or close your own lot.

For that you need to take into account:

• the right side of the order book;
• the volume available at each level;
• the weighted average price of the full execution;
• the fees of both legs.

That is exactly why the calculation in Arbitrageur is built on order books, taking into account the lot size you set.

A difference in last prices may look attractive, but the terms of a trade are determined by the prices and volumes at which you can buy on one leg and sell on the other.