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Market making crypto

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Market making crypto

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  #1 (permalink)
North Carolina
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011

Crypto seems like a pretty good market to get started market making or building HFT because the risk can be low if you don't risk any real money. And, if your trades get hung, assuming you are trading long only, then it can become Mark Cuban Play. I have some ideas for some graybox market making bots, as well. Whilst I'm not sure, I feel like it might be possible for me to use my tape reading/prediction to bias the odds a little in my favor but the graybox would automate much of the actual trading.

But, just manually entering the trades over several hours, I managed to make about 50 trades. I had only a few hung trades which I could have recovered better but finally just close those last few out. For the appx 50 trades made, I had maybe a max of $300-$500 at risk total at any one time which would only happen if BTC went to zero but typically even less. I managed to return a whole buck twenty or $1.20 for the work. That is literally $1.20. Disclaimer: Results should be treated as hypothetical. Past performance is not indicative of future results.

The first trades I made were the hung/lost trades but capturing the spread in total volume made up for the losses. The spread widening and low liquidity can work quite nice actually for market making/limit order scalping operations.

I wasn't sure if it could be profitable. While I did read the tape very basically and traded in some fashion, it was really rudimentary. I could identify the primary limit order sellers and buyers. However, for the most part, I did not even really trade them but instead I just provided liquidity. Also, the liquidity can drop a lot more then I noticed before. So, there were times yes when executing more then a few bitcoin could move the market more significantly then I would have anticipated.

Of course, keeping your size really small is what is needed to make this work. I was hit for a pretty "good amount" in terms of total market movement. But, capturing the spread over and over and obviously always for way more then the minimum .01 cent spread made up for the losses.

$1.20... Call it the McCafe Trade.

Update one of the interesting things, as a tape reader, is to see the relationship between the momentum players and the market maker/value players. This is often obscured in futures because of the more efficient market. However, in cryptos it is more clear. The momentum buyers drive the market away from the value/market maker. If a market maker would come in behind the momentum buyer with big size, it would provide a way for such a trader to hit out for a profit. So, the depth slowly fills in behind the momentum buyer. Of course, if you're getting a valuation change then often those orders won't be filled anyway because no one is selling. However, sometimes the orders will be filled. This creates the spikes that fill the market makers bid. The spike will drive down typically to the primary value buyer because the liquidity provider won't be providing much support. This creates the spike/v-bottoms. It is also possible the natural buyers/sellers start to get more aggressive and go to market which drops the same side liquidity.

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Last Updated on October 22, 2017

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