Disclaimer not financial advice- not an expert- trading Chia or other cryptocurrency is done at your own risk
Forget the trading fees!
In order to start to understand how the Chia market works.
Knowledge of “price makers” and “price takers” : the balance between the two; and what that means for a fair and competitive market is an essential tool one should have when creating a chia trading strategy. But it could also be used to help decide whether or not it’s even worth farming in the first place.
It is one of the most confusing and well written about subjects in business. One could easily write a book on this topic (and many do) so we will try to keep it stupid simple as we break it down.
You as a farmer of Chia are both a price maker and taker. Knowing which one you are, and at what time is absolutely essential in understanding why the price of Chia is what it is, its strengths and how you position yourself to get the best value for your Chia going forward.
What is a price maker?
A price maker is simply someone who sets the price of a transaction(value of a good or a service). In terms of the chia market, that would be someone who sets an order for any amount of XCH at a specific price limit (that is not the current price) and waits for said order to reach that price and be filled. If you are holding your coins for Chia to moon; you are technically a price maker in the most loose of terms. In traditional transactions a price maker would be a retail or a grocery store or any skilled service provider. Whomever sets the value is the maker of the price.
Price makers are always in competition with each other whether buying or selling and are constrained by things like “supply and demand” or regulation in terms of traditional exchanges.
What is a price taker?
A price taker is someone who accepts the price as it is, and initiates the transaction process. If you’ve been selling chia coins at any price you are a price taker. Price takers always lack the value share of the market to affect the price on their own.
Everyone is a price taker in a competitive balanced market, in a perfect market everyone is a price taker and holds an equally small share and has an equal amount of information about said market.
So why does knowing this matter when coming up with a trading strategy?
Just because you are a price maker, does not mean you set the price of Chia. As mentioned above you are in a competition with everyone else setting the price. You are fighting mathematical laws like supply and demand, you are fighting Chia Network and that giant premine itself. It’s going to be a very uphill battle for price makers going forward with Chia because it’s not a perfect market; we don’t know 100% what is going on behind the scenes open sourced (or not).
Remembering that every market player big or small eventually turns from maker to taker but not necessarily; taker to maker (only really big market players with some kind of leverage can do this) is a key concept when deciding on a Chia trading strategy. Even if that’s not entirely true because you can value something however you want.
The reality of the price you set needs to be realistic. Just because you set a market price of X doesn’t make it worth X. (There are some Chia forks that could take a lesson from this)
At the same time takers don’t need to just always accept the price and can value a good or service however they please. You don’t have to sell all your Chia coins just like you don’t have to hold them all.
That is why a successful trading strategy accounts for both the maker and taker ebb and flow within the market.
For most of us as small Chia users we should follow a trading strategy that is diverse enough to cover that ebb and flow over multiple timeframes (short position versus long position) understanding most of the time we are going to be takers and not makers. I’m sure a few Chia farmers have enough assets to swing the price of Chia as a maker but we are talking about the top 0.1% and who would also probably follow a much more aggressive trading strategy than most.
Chia Network themselves are a massive player and could quite easily go back and forth being a maker and taker simply due to their large standing in the market. Not 100% sure myself if we as an entire community can match the strength of the premine plus their monopoly over the development of their service and utility. Which we all know in crypto is everything.
It’s a ton of leverage.
However that being said; Chia Network themselves cannot technically even set a price for the coin. Unless another more extreme method (some absolutely illegal) was used.
The honest tl;dr is that you should cover multiple options within the Chia market to hold both a maker and a taker position. If you have ever heard of diversifying a portfolio now you know why it makes sense to do so especially if you are a small trader/farmer. You simply cannot control what everyone else is going to do so why put all your eggs into a single basket:
Don’t hold your all coins till Chia tanks to zero or sell them all before the project matures and hits 100000$. There is no really no such thing as a perfect competitive market. Plan accordingly because larger players are.
Hopefully through understanding what a maker is and what a taker is we can set ourselves up better to play each role Going forward. Because whether or not you are trading your coins you are already playing one of these roles.
