An automated market maker (AMM) is a type of [smart contract](https://www.cointree.com/learn/what-are-smart-contracts/) that lets somebody buy or sell a digital currency — even if there isn't anyone on the other side of the trade.
On traditional exchanges like the Australian Stock Exchange (ASX), buyers are matched with sellers at the price they're willing to make a trade. This works fine for popular stocks that always have a large number of people wanting to buy and sell each stock. However, this becomes a problem for low volume cryptocurrencies that don't have many buyers or sellers.
Uniswap solves this problem with automated market maker (AMM) technology. Instead of having to trade directly with another person, it lets you make trades with a pool of liquidity. The AMM algorithm uses the supply and demand dynamics of each token to determine the fairest price for somebody to buy or sell it.
When somebody makes trades with the Uniswap liquidity pool, they are charged a 0.3% transaction fee. Anyone who is staking their tokens in that liquidity pool will receive a share of that fee, which is why people contribute their tokens to the liquidity pool.
AMM's can therefore operate 24/7 every day of the year. Uniswap is one of the most widely used AMM's in the world and holds a substantial amount of liquidity, providing network effects that improve the protocol further.