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Taker vs. Maker Arbitrage

Author

Listed:
  • Marco Gortan

    (University of Basel; Swiss Finance Institute)

  • Angelo Ranaldo

    (University of Basel - Faculty of Business and Economics; Swiss Finance Institute)

Abstract

Arbitrage is canonically viewed as liquidity-taking: arbitrageurs exploit discrepancies between assets with identical payoffs by taking liquidity on both legs, i.e. taker arbitrage. We show that arbitrageurs can instead provide liquidity on one leg of a payoff-equivalent position and take liquidity on the other, i.e. maker arbitrage. Using more than eight million arbitrage transactions from a leading prediction market, we find that more than half of arbitrage bundles are maker arbitrage, executed by more sophisticated traders bearing limited execution risk. Exploiting the introduction of a taker fee, which burdens taker arbitrage more than twice as heavily as maker arbitrage, we find that the price deviations required for profitable trading increase substantially more for taker than for maker arbitrage. Arbitrage thus emerges not only as a force that corrects mispricing but as a channel of liquidity provision.

Suggested Citation

  • Marco Gortan & Angelo Ranaldo, 2026. "Taker vs. Maker Arbitrage," Swiss Finance Institute Research Paper Series 26-55, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2655
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    Keywords

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    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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