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Author Topic: seek info on market-making programs for BTC  (Read 648 times)
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December 21, 2011, 07:01:47 AM
 #1

Hi,

I have some prior experience in writing automated trading systems which functioned on NASDAQ and futures exchanges, roughly 8-10 years ago.

One of the widely acknowledged problems with BTC seems to be its price instability and illiquidity, i.e. high volatility.

If BTC were a publicly traded equity, it would likely have 'market makers' which hold a certain reservoir of the stock, and make their offers
available all day long on the market, to buy at Bid and sell at Ask in order to 'make the spread', ie. profit just a few cents on each trade.

Market makers provide significant liquidity and stability to equity markets -- why don't I see anyone making a market for BTC, say on MTGox?

I have seen other exhanges which offer a premium for 'adding liquidity', i.e. keeping open orders on their books - but that's not the same.

In particular, there are algorithms which will calculate optimal spreads and automate the market-making function continuously.

Given the daily volume on MTGOX, I'd guess that a reservoir of only about 150 BTC would suffice to enable market-maker to operate.

So I'm looking for pointers from you experienced members to projects that are underway to add market-making to an exchange, or research,
or reasons why it cannot be done...  

thanks for any advice

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December 21, 2011, 10:17:50 AM
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I'm not really understanding what you are asking, but 150 btc is something that anyone who is serious can just buy, not that expensive...
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December 21, 2011, 10:19:57 AM
 #3

You don't see them because you aren't looking closely enough.  They are there.  I'm running one now Wink.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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December 21, 2011, 03:46:59 PM
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sorry I meant 150K BTC!

notme, that's great! 

How are you making out with it?  Are you inside the spread or outside, and about how much liquidity are you adding?


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December 21, 2011, 03:49:49 PM
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Could you explain with more detail how does it work? Or give some pointers to literature about it... I'm interested Smiley
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December 21, 2011, 03:56:23 PM
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sorry I meant 150K BTC!

notme, that's great! 

How are you making out with it?  Are you inside the spread or outside, and about how much liquidity are you adding?



I've only been running it a few days, and with just 3 BTC trades.  1.5% between orders with 3% in the middle.  Small profits are creeping in, so I might throw more at it.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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December 27, 2011, 07:28:02 AM
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Interesting - are you saying it only trades orders of 3BTC at a time? 

If it really is using a simple strategy like a fixed percentage spread, and it's not being taken out by
other automated algs, this would seem to indicate that yours is the only market-making alg operating at present.

You can find some research papers out there on more sophisticated algs to get some ideas, for example analyzing the stack and adding to, or running just inside, larger block orders...  I am still seeing people run the stack by a good .5 BTC with ease, which also speaks to the lack of any real market-making presence.

Do you agree with my conjecture that 150K BTC would be enough to dampen the intraday price swings to within a few percent?

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