Why would you want to be a taker in a maker/taker exchange?

Question

Take the following example:

On a cryptocurrency exchange with a maker/taker fee structure, the buys are listed as

1.030000 btc - $ 2103.89, 409.2138 btc - $ 2103.67, 44.23384 btc - $ 2103.53, ..., .., .

And sells are listed as

101.0300 btc - $ 2104.01, 79.21638 btc - $ 2104.21, 2.233874 btc - $ 2104.97, ..., .., .,

And let's say the exchange charges .3% for a taker fee and .001% as a maker fee.

Now as I understand it, the only way for the market to market to move is for takers to come in and purchase (maker) orders that have been placed on the books. Why would someone do this, when you pay significantly less fees by creating liquidity (a maker order)? Do people decide that they have to be the sacrificial lambs and eat the taker fees in order to get the market to move? I just don't understand what incentivizes someone to eat the taker fee, rather than just wait for either someone else to move the market up a little bit to hit your order that's on the books (either stick the sell in at 2104.01 or the buy in at 2103.89).

Answer 1

Any time you place a limit ("maker") order, you run a risk that it will never execute, because the price may move in the opposite direction and never come back. A market ("taker") order avoids that risk, at the cost of a slightly higher trade fee.

In your example, imagine you put in a limit sell order at $2104.01. An instant later, someone else puts in a large sell order at $2104.00. The next several orders drive the price down further. Then a succession of buys and sells makes the price fluctuate a bit, but with no trades as high as $2104.01. A few days later, the price collapses and settles around $1000.00. There is little chance of your $2104.01 order ever executing now. If you want to unload your BTC, you'll have to cancel your order and sell at $1000.00 instead. On the other hand, if you had put in a market order in the first place, you'd have sold at $2103.89. By trying to save a few pennies, you missed the peak entirely and lost thousands of dollars.

Granted, this scenario is pretty unlikely. In a market with reasonable liquidity and volatility, there will usually be enough fluctuation that your order at $2104.01 will probably execute rather promptly. But there is no guarantee of that, and a scenario like the one above is always possible, even if improbable. So it represents a risk, though possibly a small one. The lower fee for limit orders helps compensate you for that risk. Some people will feel it's adequate compensation and go ahead with a limit order; some will feel it's inadequate and go with a market order.