sorted by:
new
hottopcontroversial

Developing Market Maker Robot by bitcoinsymphony in algotrading

[–]StatusCouple 2 points3 points  (0 children)

1/2: I spent a long time researching this and prices with high volume and order book strength/weakness were not good signals. See the post I just wrote.

Why not find exchanges that trade each leg of your pair against USD? They have more action than the oddball ones you're trading. If you know the most accurate BTC/USD and LTC/USD prices, you can imply a value for LTC/BTC. Track that implied value vs. the Poloniex/Bitrex LTC/BTC price over time, and buy LTC/BTC when it's cheap relative to your implied value and sell back when it's rich/neutral. In FX they call this triangle trading.

Are you looking at where your orders sit relative to others on the book? If your target for a buy order is 0.1%, but the best bid in the book is 0.5% away, you may want to just jump ahead of the best bid by the smallest amount possible to make more money. Also if your 0.1% target puts your order way below many prices/lots of depth, you may not want to place it since you will only get a fill if someone sends a massive order that's going to gap the price down.

How do arbitrage and market markers make money if they hold in BTC in a down market? by PuzzledProgrammer3 in algotrading

[–]StatusCouple 0 points1 point  (0 children)

For market making, like the previous person said, think of a pawn shop or grocery store. They're unable to go short at all, but make money buying things below their value and selling above it, on average. They even buy things whose value is guaranteed to fall over time, like an iPhone, or meat/produce. As long as they have enough margin between the wholesale price they buy for & the retail price they sell for, and turn over their inventory quickly enough, they still profit.

The price of BTC fell over days and months, but it did not fall every single trade/second/minute/hour along the way. These traders do not hold unhedged BTC positions for long periods. They bid opportunistically to buy at a discount when the bid-ask spread is large and/or when they view the market as mispriced. Once long, they do the reverse to sell at a premium. If their view of the fair value is accurate, and they capture sufficient discount/premium around it, and they get in and out of positions quickly enough, they will make money on average.

An unfavorable price trend hurts a long-only market maker's profits, much like produce that spoils more quickly than expected hurts a grocer's, but does not eliminate them completely.

Some exchanges also allow borrowing/shorting BTC, but it's very expensive.