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Author Topic: I'm having trouble understanding market makers actions.  (Read 198 times)
Jet Cash
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January 06, 2019, 01:56:12 PM
Last edit: January 06, 2019, 02:21:53 PM by Jet Cash
 #1

I'm looking at the trading panel on one of the exchanges. It looks as if one guy has got market maker buy and sell orders running at the same time, and he has locked the BTC<->GBP into a narrow sideways movement. This isn't true of the dollar and euro charts.

If he submits a buy order at £3,030, and also a sell order at £3,040, will the exchange keep fulfilling his orders to give him a £10 per bitcoin profit.  He seems to keep topping up his orders as they are partially fulfilled. This seems to be a no risk trading strategy. I understand that if the marked shoots up, he can miss out on some of the gains if he can't cancel his order in time, but he still makes a profit. If the market drops, then he can just hold on until the market goes up again, again this assumes he can't read the market and cancel his order in time.

[UPDATE]
Since Bitcoin has gone up slightly, he seems to have come back with a 15 Bitcoin order, and prices around £3,045.

Of course, I don't have enough info to be sure it is the same guy, but the principle seems to be the same.
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January 06, 2019, 03:03:07 PM
Merited by Jet Cash (5), Welsh (2), vapourminer (1)
 #2


Without details, it's not possible to say exactly what's happening in the example you're watching but, in general terms, a market maker's idea of heaven would be to sit there all day making his 10 point spread without holding a long or short position for any period of time.
In quiet Sunday market conditions with no news, that's quite likely.
A market maker's main worry is inventory management in a trending market i.e. not getting stuck with unsold longs during a bear move or vice versa. There are various techniques to mitigate this including hedging, arbitrage and volume adjustment algorithms.
The expression "picking up dimes from in front of a steamroller" applies to market making.
The big picture is what matters at the end of the day; if he does 1000 trades making a spread profit of 1 point on each and loses 5 points 50 times by being caught long/short in a trend move, that's a successful day.

In your example, there's also the possibility that the account you're watching is in fact the exchange playing market maker, or wash trading to provide the illusion of activity.
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January 06, 2019, 04:15:55 PM
Last edit: January 06, 2019, 05:35:25 PM by Jet Cash
 #3

The thing that intrigued me was that a 10 and a 15 Bitcoin open order on the GBP panel was keeping the market flat. The EUR and USD panels were far more active, as they only contained minor open orders.

>>

It looks as if he has gone now, but there is a low(ish) 10 BTC buy order on the USD panel, Maybe he has switched currencies, or, as you say, maybe the exchange is trying to create a resistance level. It has to be guesswork on my part though.

>>>>

My £2,751 buying order is looking a bit sad. The price is knocking around £3,222
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January 08, 2019, 08:24:23 AM
 #4

...one guy has got market maker buy and sell orders ...

"Market maker" is not the correct terminology here. He has "limit" buy and sell orders. The trader might be a "market maker", but I think you mean something else. The fact that the trader pays the "maker" rate doesn't make him a "market maker". Those terms are unrelated.

If he submits a buy order at £3,030, and also a sell order at £3,040, will the exchange keep fulfilling his orders to give him a £10 per bitcoin profit.

If the trader has a buy order at £3,030 and a sell order at £3,040, then he will indeed make £10 when somebody sells at £3,030 and somebody else buys at £3,040. The biggest risk is that when the price goes outside of the range, the trader can lose money.

For example, if the price goes to £3,055, that means he has sold all of his bitcoins at £3,040 and he will have to set up a new range, buying at £3,050 and selling at £3,060. So, he sold his bitcoins at £3,040 and is now buying them back at £3,050. That's a loss.
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January 08, 2019, 03:08:22 PM
Merited by paxmao (1)
 #5

My reference to "market maker" relates to CoinBase Pro. A maker doesn't pay commission, but a taker does. The commission can kill the profit on a narrow spread.

With regards to your second point. A sale at a price point before the top is not a "loss", but simply an unrealised profit. One of the greatest stock market traders ( I forget which one ) was asked to what he attributed his success. His reply was " Selling too soon ".
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January 11, 2019, 12:09:24 AM
Last edit: January 11, 2019, 12:09:15 PM by mikeywith
Merited by Jet Cash (2)
 #6



this could be anything, but from a TA point of view, there are levels where prices are almost quartered guaranteed to pass if they go to.

looking at charts , you can spot some numbers that are more like a "free zone" where price never retraces from.

they are rare and only after having spent so much time trading you can spot them.

for example assuming the level from 3505 to 3515 never had any price action, and the price is at 3500 the scalpers knows/think that once it hits 3505 it's most likely going to 3515 before going any where else.

so buy order at 3505 - sell order at 3515.

these are mostly bots work, hard to be done by humans on such a scale.

also keep in mind that many times the order book is just fake and misleading.
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January 11, 2019, 09:39:07 AM
 #7

I'm starting to get the hang of it, and the potentil can be boosted with a bit of arbitrage. I'm still playing safe by avoiding gearing and shorts. That way, as long as I only buy coins with a positive use case,then ultimately I don't think I can lose, even if the market turns against me in the short term, I just keep the coins as an investment.
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January 11, 2019, 12:15:24 PM
 #8

I'm starting to get the hang of it, and the potentil can be boosted with a bit of arbitrage. I'm still playing safe by avoiding gearing and shorts. That way, as long as I only buy coins with a positive use case,then ultimately I don't think I can lose, even if the market turns against me in the short term, I just keep the coins as an investment.

this depends on your "goals" what are you trying to achieve ?

if you just want to hodl crypto for an unknown period of time and only trying to load more bags then your method will work, but if you want to day-trade then you should think of shorting just as you think of longing, specially in a bear market like the one we are in now, short positions are safer to take to begin with, also by shorting bitcoin you make more bitcoin should your call be a good one.

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January 11, 2019, 12:32:14 PM
Merited by mikeywith (1)
 #9

I've got 3 initiatives I suspect.

- Accumulate Bitcoin as a wealth protection measure. I anticipate holding to be of at least 2 years duration.
- Explore alternative cryptos with positive potential, and a real world use.
- Experiment with low risk trading. Thus includes covered shorts, arbitrage, and profiting from short term long positions.

If you accept that Bitcoin has a golden future, then this is a no risk policy in my opinion. Well perhaps some of the alts will be failures,but sensible diversity will compensate for this. There is such diversity in the alternative crypto marketplace, that it is really quite fascinating. It also reflects some of the political changes that are taking place.
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January 12, 2019, 12:22:01 AM
Merited by Foxpup (3)
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If you accept that Bitcoin has a golden future, then this is a no risk policy in my opinion.

Binary thinking is a mistake made by most investors. Do you actually "accept" that Bitcoin has a golden future? In other words, would you stake your life on it? If not, then apparently you don't really believe it is a "no risk" policy. Assuming there is no risk is a mistake.

I am very bullish on Bitcoin, but I give its price a 30% chance of eventually going to 0. I give its chances of exceeding $100k within 10 years a 10% chance, and landing somewhere in between gets the remaining 60%.
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January 12, 2019, 02:50:32 PM
 #11

Bitcoin will never go to zero. There are too many people like me who like the concept, and we will continue to use it, even if it loses its mass appeal.

The only thing I would stake my life on is me.
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January 12, 2019, 05:31:17 PM
 #12

My reference to "market maker" relates to CoinBase Pro. A maker doesn't pay commission, but a taker does. The commission can kill the profit on a narrow spread.

Just to explain what others have mentioned- a "market maker" in the crypto space typically refers to a practice of spoofing volume on certain markets to convey a different message. Typically, to trick speculators into believing a coin has more liquidity and trading activity than it actually does. New exchanges perform this activity to propagate a much higher volume in an attempt to attract new traders.

Sometimes market makers are used for more robust activities- like inflating the price of the coin. The more "complex" the activities of the market makers, the more difficult for them to succeed.

But yes, in the case of Coinbase, "market makers" refer to traders who place market orders, rather than take them.
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January 13, 2019, 09:05:03 AM
 #13

So my original idea about Coinbase terminology was correct. It seems best to be a market maker, as you don't pay any commission then.

I don't think I'm a natural for this trading though. My buy order is too low, and my sell order is too high. At least that way I'm not losing money. Smiley I'm also supporting the Yellow Vests' initiative to stop leaving money in the bank. I think I'm going to withdraw some more, and use some other exchanges to buy some interesting alts. It not easy though, as most exchanges seem to prefer the bankrupt Euro to the more reliable Sterling. One exchange wants 10% commission - I'd rather buy a mining rig, and try to mine some of the alts.
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January 13, 2019, 09:50:33 AM
 #14

So my original idea about Coinbase terminology was correct. It seems best to be a market maker, as you don't pay any commission then.

Sorry for being pedantic.

You aren't a "market maker". That isn't the terminology used by Coinbase Pro. Here is what Coinbase Pro says:
Quote
Maker vs. taker
When you place an order at the market price that gets filled immediately, you are considered a taker and will pay a fee between 0.10% and 0.30%.When you place an order which is not immediately matched by an existing order, that order is placed on the order book. If another customer places an order that matches yours, you are considered the maker and your fee will be 0%.

It never says "market maker". It says you pay the maker fee (which is 0) when you place an order that isn't filled immediately.

Just to explain what others have mentioned- a "market maker" in the crypto space typically refers to a practice of spoofing volume on certain markets to convey a different message. ...

But yes, in the case of Coinbase, "market makers" refer to traders who place market orders, rather than take them.

You don't know what you are talking about. That is not what a market maker is. I know you don't know what you are talking about because you don't even know what a "market order" is.

A "market order" is an order that is made at the "market price", which is whatever price is necessary to fulfill the order immediately. If you place a "market order", you pay the taker fee. A "limit order" is an order for which you set the price. When you place a "limit order", you pay the maker fee because your order will sit in the order book until somebody takes it.
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January 13, 2019, 10:37:30 AM
 #15

I understand the concept of a market maker. When I worked for the London Stock Exchange, I wrote part of the accounting routine of stock jobbers ( The bit called the "Jobber's marking ledger" ), and stock jobbers were the market markers in the days before computer based trading. I'll draw your attention the is extract from the Coinbase site

Quote from: CoinBase
MAKER VS. TAKER
When you place an order at the market price that gets filled immediately, you are considered a taker and will pay a fee between 0.10% and 0.30%.
When you place an order which is not immediately matched by an existing order, that order is placed on the order book. If another customer places an order that matches yours, you are considered the maker and your fee will be 0%.
When you place an order that gets partially matched immediately, you pay a taker fee for that portion. The remainder of the order is placed on the order book and, when matched, is considered a maker order. The fee is 0% for that part of the total order.

All my references to being a "maker" are specific to trading on the CoinBase exchange. If you consider their definition to be incorrect, then I would be grateful if you could raise the issue with their management. It was their definition of maker that caused my confusion in the first place.
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January 14, 2019, 12:52:53 AM
 #16

Understanding the market is as difficult as understanding human nature, but your case is crystal-clear to me. When the market is very uncertain, there's sense in playing it safe, and only look for a very small profit. It's always better than a loss.
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January 14, 2019, 03:53:07 PM
 #17

Well I'm obviously misreading the TA - I was a couple of dollars away from making a profit on my USDC position. and my buy option was under the XE price, but CoinBase stayed £3 above it, so that didn't get triggered either. The good news is that I haven't lost any money, the bad news is that I lost a bit of sleep through watching the price movements.
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