High Freq - Bot-Trading

[JohnDow1968]

Hi,

Is Bot-Trading in the BTC/Crypto arena useful? Does it make any sense at all?
So far I believed bots are messing up the exchanges and influence the price??? Mostly bad...
Can somebody help me out I got no idea. What are the pro and con's if there are any.
Obviously a watchdog looking after your funds does make sense, but a feel for the markets is only for humans right?

Lot's of questions came up while I got this link in my inbox:
http://www.bitly.com/BTC-Trader
I've heard of simple MA bots, but what about if bots become more advanced?
All those very small buy & sells on MtGox (bitcoin.clarkmoody.com orderbook) don't make sense to me at all. Are those trade bots already?

Let me hear your thoughts.

[daybyter]

I think it makes sense...

[JohnDow1968]

Great discussion so far... 

[sukiho]

my view is that bots can do it fine, its the same as chess, theres really no need for human feelings in it, on the other hand you have to have a bot that does what you want and if your only doing a trade once or twice a week you dont really need a bot to do the actual trading most of the time, just when you are sleeping or away from the computer and a trade looks likely

the high frequency small amounts, I guess thats just an attempt to influence the market, you would need a bot for that or you would go crazy

and the link you posted, pure spam if not scam I would guess

[jordan.dev]

I operate multiple bots for market-making activities on Bitfinex (www.bitfinex.com)

With that in mind, they're pretty agnostic.

The goal is just provide liquidity and to narrow the spread and give traders an opportunity to trade at any given time near the mid-point in the price-spread.

HFT trading bots have all but removed any and all arbitrage in more traditional trading markets (equities, options, futures, etc.)

However, the lack of liquidity on most BTC exchanges today provides an opportunity for those interest in this type of trading to help provide liquidity at or around the current traders whom wish to trade at any given point in time.

So I'd argue the necessity of bots is less a "good/bad" thing - more of a question of "How important is liquidity?"

(and what happens when the market behaves in a way that liquidity bots aren't prepared for and they remove all their liquidity ala "Flash Crash")

[BtcBling]

I operate multiple bots for market-making activities on Bitfinex (www.bitfinex.com)

With that in mind, they're pretty agnostic.

The goal is just provide liquidity and to narrow the spread and give traders an opportunity to trade at any given time near the mid-point in the price-spread.

HFT trading bots have all but removed any and all arbitrage in more traditional trading markets (equities, options, futures, etc.)

However, the lack of liquidity on most BTC exchanges today provides an opportunity for those interest in this type of trading to help provide liquidity at or around the current traders whom wish to trade at any given point in time.

So I'd argue the necessity of bots is less a "good/bad" thing - more of a question of "How important is liquidity?"

(and what happens when the market behaves in a way that liquidity bots aren't prepared for and they remove all their liquidity ala "Flash Crash")

Bot is pot of gold... with correct settings very profitable - but hard to configure correctly. Nice gamble for every minute!

[jordan.dev]

Bot is pot of gold... with correct settings very profitable - but hard to configure correctly. Nice gamble for every minute!

I think the pot-of-gold is the stability in BTC prices that allows bigger investors to be reassured they won't be moving the price 5%-10% entering/exiting the market...

[JohnDow1968]

Jordan-Dev. Thank you for the input so far. Makes a lot of sense.

John

[JohnDow1968]

Anybody else something to add?

[daybyter]

I still don't know, what you want to do? Code a tradebot? I'm working on such code, so I guess it's obvious, that I find it useful.

[JohnDow1968]

I just found out the bot is of the "high-frequency" type.
How could that work out?

[runam0k]

Please, no.  HFT simply undermines how markets operate, increasing trade volumes yet doing nothing to increase liquidity.  HFT presents a new barrier to entry and exists purely to skim money.

This is fantastic btw - an animation of 1/2 a second of real world
trading activity in Johnson & Johnson stock - mind blown:
http://www.nakedcapitalism.com/2013/05/ian-fraser-the-beauty-and-insanity-of-hft.html

What happened to the days where (most) market participants would actually look at the company, the management, the business plan, etc, and actually place a value on shares.

The article above says it best, "high frequency trading has nothing to do with the efficient allocation of capital, and everything to do with socially-useless proprietary trading that runs counter to the interests of long-term investors".

[daybyter]

Uhm...are there any 'high-frequency' exchanges? Most of the ema-crossing bots make maybe 1 trade / day. So a bot, that makes 1 trade / hour is already 'high-frequency' in the bitcoin world, I guess. Most exchange will ban you, if you request data more often than every 15s, or so. So I guess bitcoin HFT is not comparable to 'real-world' HFT.

[monsterer]

Uhm...are there any 'high-frequency' exchanges? Most of the ema-crossing bots make maybe 1 trade / day. So a bot, that makes 1 trade / hour is already 'high-frequency' in the bitcoin world, I guess. Most exchange will ban you, if you request data more often than every 15s, or so. So I guess bitcoin HFT is not comparable to 'real-world' HFT.

Request frequency is simply not the problem with HFT on BTCUSD, it's the massive, massive spreads which exist due to the huge transaction fees.

HFT bots are mostly market-markers which make profit by providing liquidity on both sides of the spread, but given a 0.6% trade fee, at BTC being $100, break even is when price moves $1.211 which is a vast amount. This is why trades are so infrequent, nothing to do with exchange limits.

Cheers, Paul.

[jordan.dev]

Uhm...are there any 'high-frequency' exchanges? Most of the ema-crossing bots make maybe 1 trade / day. So a bot, that makes 1 trade / hour is already 'high-frequency' in the bitcoin world, I guess. Most exchange will ban you, if you request data more often than every 15s, or so. So I guess bitcoin HFT is not comparable to 'real-world' HFT.

Request frequency is simply not the problem with HFT on BTCUSD, it's the massive, massive spreads which exist due to the huge transaction fees.

HFT bots are mostly market-markers which make profit by providing liquidity on both sides of the spread, but given a 0.6% trade fee, at BTC being $100, break even is when price moves $1.211 which is a vast amount. This is why trades are so infrequent, nothing to do with exchange limits.

Cheers, Paul.

Hence the reason we traders like to call Magic the Gathering Online Exchange by it's real name: A joke.

No market makers (those whom trade for free to tighten spread), one sided trades markets, lagging trading engines, a liquid and orderly market does not this create.

[JohnDow1968]

So high freq. on an exchange with 0.6% fee (Gox) is not going to work at all?
The price needs to move at least $1.2 to make 0% profit. Is that correct?

[daybyter]

You only considered technical trading. Triangle arb might work.

[monsterer]

So high freq. on an exchange with 0.6% fee (Gox) is not going to work at all?
The price needs to move at least $1.2 to make 0% profit. Is that correct?

That's correct.

In order for proper high freq. market makers to be profitable the fees need to be handled differently, as it stands now the higher the price of bitcoin, the further the price will need to move to make break even on a round-trip trade at 0.6% fee:

* At $100/BTC, its ~$1.2
* At $200/BTC, its ~$2.4
* At $1000/BTC, its ~$12.11

So, as price rises it becomes more and more difficult to break even, unless the market gets more and more volatile at the same time.

Something like a fixed spread fee of some number of satoishis might work, as you have in some forex ECN brokers.

[monsterer]

You only considered technical trading. Triangle arb might work.

There are theoretical massive wins to be had through arbitrage in bitcoin, but it's just so, so hard (and slow) to get fiat in and out of exchanges that this is currently impossible.

How do I know it's impossible? Just take a look at the difference in BTCUSD across exchanges - it's massive. That says arbitrage is currently not possible because otherwise the gap would already have been arbitraged away to 0.

[daybyter]

There are exchanges with lots of currency pairs. No need to move money from one exchange to another.