When trading you may come across the terms ‘maker’ and ‘taker’. While you don’t strictly need to know what these mean in order to trade, you may be wondering what the difference is.
The term ‘maker’ can be defined as someone who ‘makes’ the market by providing liquidity, while the term ‘taker’ can be defined as someone who ‘takes’ liquidity away from the market.
Makers place ‘limit’ orders to execute at a certain price or better, and by doing this provide liquidity which is beneficial to the market. Takers on the other hand place ‘market’ orders to execute straight away at the next available price, this removes liquidity from the market.
It should also be noted that if someone places a ‘limit’ order at current market price this order will execute immediately, if there is enough liquidity, and will therefore be classed as a taker.