The Choice of Pips
Definition of pips
Pips refer to the minimum change of an unit price and is one of the basic parameters in contract trading rules.
While the financial market quotes in dollar, it tends to sets pips in cent. Unlike traditional financial market, the cryptocurrency introduces lengthy decimal points in quotes for the purpose of appreciation and is designed mainly for transactions without specific price preference.
Pros and cons of pips size
Suppose that the exchange prioritize price over time while matching deals.
Financial research shows that the influence of pips size differs depending on the participant’s trading style.
Based on the supply and demand for liquidity, market participants can be divided into liquidity providers and takers. Pips are a key tool for trading platforms to regulate the relationship between liquidity providers and takers.
In an otherwise similar liquidity market, market makers (liquidity providers) compete on time when pips size are higher, and they tend to queue up at a specific price until it is triggered by price volatility. On the demand side, speculators (liquidity takers) pay at least half the pips liquidity in compensation to reach a deal.
When pips size are lower, some market makers can precede other market makers by competing on price at the expense of small pips. Competition will contribute to the narrowing of market bid-ask spreads, liquidity being spread across different prices levels. At this point, speculators benefit from market makers’ competition, thus paying less liquidity premiums.
It must be made clear that market makers’ intense competition doesn’t necessarily lead to more liquidity. To maintain their business, market makers need a certain amount of profit. Excessive competition (when speculative players with strong trading ability join) will damage market makers’ income, thus restraining market-making operation.
Generally speaking, when the liquidity is similar, market makers have an advantage in dealing with products with higher pips and speculators in dealing with products with lower pips.
Three main Pips rules on the market
Pips rules for type A
This type of pips emphasizes market makers’ activity and set BTCUSD’s pips at 0.5. Market making behaviors are also rewarded in the form of rebates. With these policies, it follows that market makers are very active on platforms using this type of pips and that they have the best liquidity on the market.
When the liquidity is good, big speculators benefit on these trading platforms as they can conclude fairly large transactions in one go even though they need to pay larger pips. These trading platforms prevail over other less popular platforms with their better pricing system and liquidity availability.
Pips rules for type B
Type B, on the contrary of type A, pays rebate indirectly through tokens. In type B, a good set of examples are employed to illustrate trading rules, pips, rebates, and non-trading platform rules, say, and the influence on market participants(market makers in particular) resulting from changes in platform currency fluctuations and trader structure.
Pips rules for type C
Type C sets pips using the properties of cryptocurrencies, which can displayed up to 4 digits after the decimal point.
Market makers on trading platforms using this type of pips quote in accordance with price level because using excessively detailed pips is not optimal.
Only a small number or Makers on these platforms maintain the market depth due to the lack of an attractive rebate policy. It transpires that the liquidity level is not enough to attract large investors.
Bybit is committed to bringing a revolution in today’s cryptocurrency market by combining the best of cryptocurrencies and traditional finance to bring about the industry’s safest, most reliable, fairest, and most user friendly trading platform. Bybit spurs market-making behaviors by setting a minimum pips of 0.5, has super low fees, and high liquidity incentives. Bybit protects and propels the enthusiasm of market makers to provide better liquidity on its trading platform.
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