I see this is tailored toward crypto exchanges -- what, if any, are the major differences between crypto based trading and more traditional stock/future/option exchanges?
- you can trade crypto 24/7, this sounds obvious but on the other hand side this also means, there is no pre-market trading and all the obscure things attacked to it
- before blocks are being created, transactions are usually collected in so called mempools. (Way oversimplified) block proposers or miners, who are selected to create the next block, can choose which transactions to include, as space is limited. They can also determine the order of these transactions. All of this is publicly visible and opens a lot of opportunities to harvest slippage etc. (lookup MEV-bots)
- generally speaking, there is no robin hood or other intermediary, that can block you from trading
- in crypto, you essentially have access to all available financial products without any barriers to entry compared to traditional finance
it looks like this repository is using Binance APIs for trading. So my statements are no entirely true for this case. But you can use trading bots like this on decentralized exchanges or DeFi products like curve finance without being dependent of an intermediary
> All of this is publicly visible and opens a lot of opportunities to harvest slippage etc. (lookup MEV-bots)
Basically, people can front-run your trades, and this is built into the market by design. Also, instead of the winner being the fastest like in tradfi, there is a competitive auction where participants pay for priority. See, e.g., https://archive.ph/W0nvi or pages 7...9 of https://assets.ey.com/content/dam/ey-sites/ey-com/en_us/topi... for examples. Even if you are not the one doing the front-running, you have to be aware that someone else will be.
I'm not into crypto, but I imagine it is possible to trade on exchanges with regards to price movements without trading on the chain directly. This is either a good thing (higher volumes at higher transaction speeds), or creates the exact thing crypto is meant to avoid (see: FTX).
Yes, you can trade crypto 24/7 - in theory, because liquidity is muuuch lower outside the regular daily hours
In crypto, you have only two assets - BTC and ETH, all other assets are not tradeable because of volume/liquidity, sure you can & sell them, but most trading strategies wont work well in underliquid markets
This seems off. Sufficient liquidity in a market isn't natively a binary state. That state would be imposed by the programmer with a threshold. Hardcoding only two assets would surely miss dynamic opportunities in others.
The crypto exchange is likely underregulated and frontrunning you, and since its assets are kept on a blockchain where its wallet can be drained with no recourse instead of in a ledger governed by laws, you are more likely to have your money simply disappear and reappear in a North Korean wallet. That is the most significant difference. Otherwise, it's just like any other market.
Crypto trading has no regulations, huge spreads and illogical commissions. Your online"wallet" doesn't contain the actual asset, just numbers. If the host goes bankrupt, gets hacked or just turns evil, you have no proof of ownership to sue.
The closest thing to legit crpto trading is to trade CME's btc/eth futures, but they don't have much volume or data to backtest with.
First of all in traditional stock/futures exchanges you cannot connect to the exchange itself, but must go through a broker due to the regulation. This means you cannot directly interact with the order book, needed for the high frequency trading.
Cryptocurrency exchanges are direct-to-retail so anyone can run HFT strategies and act as a market maker. Thus, cryptocurrency trading is “more democratized.”
You can absolutely host your networking gear/servers inside a co-location facility where the underlying exchange is hosted. It just requires tons of money to do so.
Realistically that isn't that much money unless you want to be some kind of hobbyist HFT tinkerer.
With no stance on whether people should be doing HFT as a hobby, presumably there is a finite amount of colocation space available and an opportunity cost/maintenance associated with onboarding people so this is what the market and regulators decided were the table stakes?
Yes, it's really not that much money, all things considered. Even regular colocation (just for hosting) at a name-brand facility with all the redundancy that the CME facility has would run you $1-2k a month.
Sadly, it is becoming more like trad-fi. In the past, anyone could receive rebates for market making, but these days, only high-tier traders, trading companies, can benefit from them. The tier hurdle is getting higher. Also, there are now different APIs and limits for individual traders and high-tier trading companies.
Brokers exist as they are providing the service of managing and routing orders to an exchange, which market participants in electronic exchanges wouldn't be able to interact with otherwise, without having a colocation spot on the exchange and knowing FIX protocol. Retail traders don't know, don't want to learn, and really have no reason to learn how to route unmanaged orders via FIX protocol. If you want to directly interact with an exchange you can do so, you'll just have to buy or lease a colocation spot on an exchange first.
Cryptocurrency exchanges are like many FX exchanges. They are not exchanges like the regulated stock, futures and options exchanges are, but are more like decentralized trading pools with unsynchronized order books, which are opaquely operated by a single broker. In crypto exchanges, it is not that there is no broker, but that the exchange and the broker are the same entity. There is no standardized protocol to route independently managed orders directly to crypto exchange servers. There's usually no way to directly interact with the exchange server at all.
A major difference is the clearing model. The asset classes you mention generally have a clearing house behind them. This is designed to protect the system against counterparty risk. If one party goes under, it has limited contagion, even to the people who were (in practical terms) on the other side of the trades.
This layer of protection allows better specialisation. In crypto, you need to trade on your own balance sheet. In centrally cleared markets, it is routine for trading firms to lease balance sheet from banks, who have lots of capital and good risk management at scale, but who are typically less effective at trading specific markets competitively. This leads to more liquidity being available and more competitive markets.
Banks aren’t trading because post-2008 regulations made it nearly impossible. They have plenty of money to hire top trading talent and did so for a long time.
- you can trade crypto 24/7, this sounds obvious but on the other hand side this also means, there is no pre-market trading and all the obscure things attacked to it
- before blocks are being created, transactions are usually collected in so called mempools. (Way oversimplified) block proposers or miners, who are selected to create the next block, can choose which transactions to include, as space is limited. They can also determine the order of these transactions. All of this is publicly visible and opens a lot of opportunities to harvest slippage etc. (lookup MEV-bots)
- generally speaking, there is no robin hood or other intermediary, that can block you from trading
- in crypto, you essentially have access to all available financial products without any barriers to entry compared to traditional finance
it looks like this repository is using Binance APIs for trading. So my statements are no entirely true for this case. But you can use trading bots like this on decentralized exchanges or DeFi products like curve finance without being dependent of an intermediary