What is a market maker?

The exchange's market maker provides token liquidity to the exchange by placing limit orders above and below the latest transaction price, thereby obtaining rewards and order spread profits provided by the exchange. Market makers have relatively high requirements for strategy development and hardware facilities. For example, strategies need to deal with the position risks brought by unilateral market conditions, and they need to have high accuracy in judging instantaneous trends. Hardware facilities need to have a small enough delay. When the trend arrives, remove the limit order on the order book to avoid position imbalance.

How is Binance Market Maker?

Binance's market maker rebate can be as high as 15,000 US dollars. Basically, this fee rate can be stabilized if the monthly trading volume exceeds 200 million US dollars, so the monthly profit can basically be stabilized at 100,000 US dollars. It is not difficult for the strategy to achieve a daily trading volume of 10 times the principal, so the principal is about 1 million US dollars, and the basic monthly return can be about 10%. Many people may think that 10% monthly return is too little, but don't ignore it. This is a stable income, and it is only the rebate from the exchange. The market maker basically has half of the bottom position. In the bull market, this bottom position can produce a huge wealth-creating effect, and the price difference profit is not included.

What does a market maker strategy include?

1. Order book analysis module. I have written some analysis articles about order flow before. Friends who are interested can check them out. You can also go online to see if there are some other order book analysis methods. I personally use the order flow analysis method + order book analysis. It is mainly used to determine the resistance and support levels. The short-term direction can also be analyzed through the order book.

2. Quotation algorithm. This part is the core content of the strategy. There are many quotation algorithms. I personally use one based on the AS model, but this model still has many imperfections. For example, the calculation of the middle price does not take into account the imbalance of the order book, and does not take into account the position situation, nor does it judge the trend. These have to be added by yourself.

3. Calculate the order quantity. Calculate the order quantity based on the position status, or refer to the AS model.

4. Risk control module.

5. Trend judgment module.

It probably includes the above contents.

Reference Books

1. Avellaneda and Stoikov’s market maker problem research method (inventory model)

2. Research on the Quotation Strategy Model with Inventory Penalty

3. High-frequency trading

I heard that there is a team in China that is using artificial intelligence to make market quotations. I am very interested in this. Friends who are also interested are welcome to contact me to discuss.