RIALTO.AI Automated Trading with Arbitrage and Market Making Strategies
By the turn of the century, most markets had gone electronic. There was a time when men picked up telephones to shout orders at other men in distant offices. And then towards the end of the last decade, electronic trading fragmented. In 2009, first-ever crypto asset, bitcoin, emerged and with the occurrence of other cryptocurrencies, exchanges where traders and investors can purchase these assets started to grow like weeds creating a perfect environment for the development of algorithmic trading based on arbitrage strategies.
Arbitrage and Market Making
The crypto phenomenon is of a global nature, meaning that in a decade, we have witnessed an emergence of new financial markets, the more so, a totally new financial dimension. The immaturity of crypto markets opened doors to traders who have got an opportunity to exploit the market unbalance with trading strategies, such as arbitrage and market making.
Arbitrage in crypto markets means buying an asset on one exchange and selling it on another at a higher price. The difference in prices brings the profit earning a fraction with each trade. Correctly executed, arbitrage and market-making strategies involve trades that are low risk relative to the expected return.
The role of market makers
In brief, market makers improve markets and provide efficiencies for end investors. Particularly on smaller exchanges, market makers provide liquidity with their bids and asks so that investors can buy and sell their assets with lower spreads. In other words, they are stabilizing spreads by maintaining liquidity especially in times of extreme volatility.
The role of RIALTO.AI traders
Our traders and developers are continuously working side-by-side, together they form one trading team.
On one side, traders are responsible for strategies and later monitoring and supervising the performance of algorithms, taking over the control in case of technical issues and adjusting the parameters used by algorithms. Furthermore, they provide developers guidance for algorithm optimization and perform research related to additional arbitrage opportunities on crypto exchanges.
On the other side, developers implement supporting software, such as communication with exchanges, collected data, and they maintain the infrastructure necessary to run algorithms reliably.
How do our arbitrage and market-making algorithms work?
The RIALTO.AI market-making algorithm takes advantage of price discrepancies among various crypto exchanges. When a market-making quote gets filled on one exchange, it is simultaneously hedged for a small profit. By quoting multiple trading pairs on numerous exchanges, hundreds of trades that generate profit are made daily and these small profits add up.
First, the reference bid/ask prices are determined for every currency pair. Market-making orders are then placed on multiple exchanges under the presumption that the purchased or sold asset can, in turn, be sold or bought respectively according to the asset’s reference prices. It is important to notice that exchange fees and profit margins must also be taken into account when calculating each order’s offset from the corresponding reference price to ensure profitability of this process. When the market-making algorithm executes the order on an arbitrary exchange, the generated asset mismatch is quickly rebalanced to maintain each asset’s total balance and thus minimize the market exposure.
In the upcoming posts, we are delivering an update about our prediction trading bot, and on July 16th, we are publishing the performance report for Q2. Stay tuned to keep up with our updates and don’t forget to follow us on our social media channels and subscribe to our newsletter.
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