Bitcoin Forum

Hello

I was making some researchers on FX brokers, and I found that some brokers are offering to pay traders for executing limit orders. This is a small shift in the maker taker model where limit orders get a discount on the transaction fees.
here's a description of this model : http://orderflowforex.com/2011/10/get-paid-for-limit-orders/
Based on this description, the motivation for such a model are :

-attract market makers
-increase market liquidity
-get tighter bid/ask spread
-increase market depth

My question : is it possible to apply this model to the current bitcoin and altcoin exchanges ? where only market orders will pay a fee and this fee will be shared between the exchange and the trader who initiated the limit order. What are the implications ?


Thanks  ;)

coinfloor and bitfinex already have something similar.

Yes they give discounts for limit orders (maker taker model) but getting paid for limit orders, I don t think they offer it

any valid offer still available?

just search but not found any offer

The amounts would need to be very small and you would likely not get paid unless your trade were to actually get filled.

Yeah traders get paid only if their trade get filled. Do you think this model could be an incentive for market makers to get the exchange's order book filled ?

This model would fit the definition of incentives for an exchange to have a larger/deeper order book.

Would exchanges need to do this in order to get people to trade on their exchanges? I don't think so as there is enough of a demand to trade bitcoin for fiat as it is. 

An exchange need liquidity provider. As soon as exchange run dry on order book, traders will move their money elsewhere.

Thank you for your response,

Here's my situation : I have been working for 3 months with 2 of my friends on an option exchange for altcoin. It's a platform that will allowed traders to issue and trade options contracts on altcoins (litecoin, doge, ...) priced in bitcoin. The very few derivatives exchanges that exist offer derivatives contracts for bitcoin priced in USD. Since the majority of altcoins are traded and priced in bitcoin, why not offering derivatives (options contracts) on altcoin priced in bitcoin ? With this tool traders will be able to speculate on the future price and miners to hedge their risk and fix their future selling price (options contract are like insurances contacts)
 
One of my main concern for this project is how to attract market maker and get my order book filled. One solution that we found is to offer to share the transaction fees (paid by traders who initiated a market order) with market makers (traders who sends limit orders). The idea is to create enough incentives to attract liquidity in the market. I know that there is a lot more to do in order to attract liquidity, (reputation and security) but in the case of a small and unknown exchange as mine, I'm wondering if this model could help.

Options would likely not be realistic for alt coins for a number of reasons.

First of all options contracts are always and by nature less liquid then the underlying security. Since most alts are very illiquid themselves trading in options of alts would be problematic as the market makers would have difficult in hedging their bets. Your strategy of paying people for limit orders would only be successful in getting people to trade on your exchange instead of trading on another exchange (gaining market share), it would not be successful in getting people to trade securities that they would not otherwise trade in (creating or expanding a market).

Another issue is that most alts (like bitcoin) has it's holdings very concentrated in few wallets (the majority of individual alts are owned by few individual people), to make matters worse it is difficult to force disclosure of major holdings. This creates additional issues of being able to price accurately as it would be difficult to determine when prices to make major swings that could be caused by a few "insiders"

I totally agree with you on your first point, options or any type of derivatives are much less liquid then the underlying security and most of alts are illiquid themselves. However I think that we are in a phase in which trading only on the spot market for some alts in not enough. Traders are looking for new securities, not necessarily options or derivatives, but new stuff to be traded.
The exchange MCXNOW (far form being the best exchange) attracted a big crowd by offering new securities (MCXFEE, MCXBUX) to be traded, even if they fucked it up later on. I think that if I don't offer securities to be traded on my exchange along with the spot trading, it will be very difficult to distinguish my exchange and gain market shares.

I have chosen options because i think they are one of the easiest security to gamble with on a future price, and we are not missing gamblers here lol. Market makers will decide on which alts to issue options contracts, they ll have a great  variety of expiration dates (very short term to long term) and a complete list of strikes prices to choose form. I m not expecting to see options issued on each and every altcoin that we offer,  some will be more attractive for options trading then others.
Options are only on example of securitization that could be offered, and one of the easiest to implement. Leverage also could be securitized as bitfinex is doing, and a lot more.

Regarding your second point, I don't totally agree, I see the same matter for fiat currencies, the majority of fiat in circulation are hold by few institutions and insider trading is a reality in the classic financial world. As long as there's a need for a financial security market makers will show up, all the rest (risks, volatility, low liquidity, insider trading, difficulties to hedge ...) will be simply reflected in the price.

Thanks for your answer

I also have been looking around and this is the first time I have heard of such an offer. Where can offers like these be found? I have been on bitfinex and still can't find it.