Algorithmic Crypto Trading — Series: Raw & Potentially Interesting Email Threads
By @mariesleaf
A 2016 thread with a friend who turned down a CTO offer from Mt. Gox (pre-hack) — runs his own traditional HFT (high frequency trading) fund. *Facts may have changed since*
Marie:
I’d love to get your thoughts on this crypto decentralized trade execution system, [retracted] :
[link retracted] (skip to at least half way through)
I also want to learn more about HFT trading and order book advantages etc. that we started to touch upon. Do you have any resources or stuff to point me to for some edification?
Also, have you guys thought about doing any crypto algo?I know last time we spoke you said you only executed on sharpes of 10…but am wondering if your sentiment has changed since this whole market blowup…
Hope all is super well!!
Marie
Friend:
So, almost none of this stuff in the crypto space is really HFT as much as traditional EMM. (Electronic market making) I say this just because the total number of trades per day is relatively low and the amount of edge you need per trade is pretty high given the high fees in a lot of places.
Generally, the business for all of the algo players in the crypto space from what I see is arbitraging between exchanges or quoting very wide to capture liquidity vacuum spikes.
I’m not sure of any super good resources for understanding order book mechanics, but I’m happy to chat and answer any questions on mechanics.
I think that video is not really getting to the “Why is there such bad liquidity in these markets?”
- Exchanges have bad reputations so there’s limited amount of capital at any exchange (I’m not going to put 500k on Polo or BitFinex)
- Exchanges have unreliable connectivity — given the rapid price moves of cryptos, it’s not acceptable to have high latencies in fills or market data — this is on the microsecond or millisecond scale for real exchanges yet spikes to minutes on the big crypto exchanges
- Difficulties in getting assets in and out of exchanges makes trading across exchanges difficult — it can take 5–10 days to get $ in and out of these places
So yeah, there are definitely some clueless people throwing away a lot of $ trading stupidly and definitely some good $ to be made in liquidity provision if you’ve got a little risk appetite. My real concern and most of my friends issue is that the exchanges are really really unreliable. (And why my friend from industry is looking to build a legit crypto exchange)
I’m running out the door, but let me come back with a few more thoughts.
And yeah, things are great! Thanks!
Marie:
Thanks for the thoughtful response. I am getting offered to put a bit of stake in the project […] so I’m trying to navigate the line between marketing hype and logic.
If you have any other thoughts, would be super appreciated!!
as for resources…i found this paper, which will hopefully help me understand order book mechanics a little bit more https://arxiv.org/pdf/1312.0563.pdf
Friend:
I think that paper is a bit overly complex though I’m not sure what a great resource is for understanding order book mechanics.
You could go through the CME’s docs on how they publish/distro order books:
https://www.cmegroup.com/confluence/display/EPICSANDBOX/MDP+3.0+-+Multiple+Depth+Book
