What is Automated Market Maker (AMM)?
In a traditional stock market, buyers and sellers wait for their orders to match in an order book.
An AMM replaces this with a liquidity pool and a math formula (like x * y = k).
Traders trade directly against the pool of tokens at any time with zero delay.
Why It Matters in Web3 & Crypto
AMMs make trading possible for any cryptocurrency token 24/7 without needing a big market maker company to provide buy and sell quotes.
Key Mechanics & Best Practices
- 1Choose an AMM DEX like Uniswap, PancakeSwap, or Raydium.
- 2Enter your trade size and review price impact before swapping.
- 3Earn a portion of trading fees by depositing equal values of two tokens into the pool.
Practical Scenario
A liquidity pool holds 10 ETH and 30,000 USDC. When you buy 1 ETH with USDC, the formula automatically adjusts the price of the remaining ETH slightly higher for the next buyer.
SECURITY & RISK TIP
When trading low-liquidity coins on an AMM, keep trade sizes small to avoid high price impact and slippage.