Crypto Exchanges and the HFT Crowd

Crypto Exchanges and the HFT Crowd

1: Adoption of anti latency arbitrage System:

Lit venues got venomous and pushed trading volumes OTC by latency arbitrage in conventional markets and along with that dark liquidity has increased in Europe. BlackRock fell off in favor of dark pools in the relevancy of best execution requirement. The dispatched paper warned against increasing tick sizes, traits that benefit latency arbitrageurs.

The speed race jeopardizes the business model in some markets in major venues and it aims at ensuring liquidity to the likes of BlackRock off-exchange. On the other side, ALA or anti-latency arbitrage mechanisms got implemented by Eurex. The process refers; more investment into the technology is required by too many liquidity providers that will safeguard them against other. Those who are very fast liquidity providers can invest in their pricing for the end client.

ALA mechanisms are of two types including policy-based, a venue deciding that latency arbitrageurs are not allowed to trade on it so alternative venues to exchanges can allow traders either take or make not being engaged in both activities, and technology-based, meaning random adding to an exchange’s matching engine to reduce the viability of latency arbitrage strategies.

Not to Oblivion Retail Roots

The liquidity of bitcoin market improved because of capital allocation and spread compression in bitcoin market is a greater risk-absorbing capacity. Liquidity of conventional markets usually takes advantage from a diverse base of market makers with risk-absorption capacity.

Crypto Exchanges which invest in scalability and user experience will succeed like what BitMEX does. Exchanges of crypto gracing the fastest traders will see that winner-takes all latency strategies not increasing liquidity. Moreover they bear the risk of opposing maximum of their users. The option provided by Huobi allows making trades 70 to 100 times faster than other users instead of which there is no charge taken by Huobi.

But Binance is opposite of the system and it always discourages its users not to adopt these HFT strategies and also it blocks users who disobey fixed limit. To have equivalent access to marketplace, they desire for all customers irrespective of size or scale.

Web-based technology much emphasizes on serving a large number of users concurrently and cloud-based services belong to a lower reliability. But verily to say that crypto is accessible directly to end users with a minimal number of intermediaries because of its ethos. Crypto can put in their servers in the same cloud providers as the exchanges so it can be said that paid-for-co-location is better than unsanctioned collocation.

Living of an exchange in a monetary, non-cloud data centre with state-of-the-art network latencies may amusingly impede the probability of progress. Such an exchange ends up ruled on the taker side by the bunch of players that effectively claim or pay for the quickest communication routes between major monetary data centers which is a risk. This may decrease liquidity on the exchange in light of the fact that a huge extent of the crypto market’s risk-absorption limit is originating from crypto-driven subsidizes that don’t have the scale to work low-latency procedures, yet may make up the main part of the liquidity on.

Exchanges risk losing market share

Verily, automation sparkles in uniting risk retaining limit custom fitted to every customer with each consistent electronic execution. Interestingly, latency-sensitive venues can see liquidity vanish in times of pressure.

The business pattern of today’s cash exchanges will come under pressure as crypto market is getting mature. Exchanges need to adopt only one corner either cater to retail or court HFTs. It is to mention that, the price impact of Tagomi on Crypto exchange is worse than against electronic OTC liquidity providers. CME could be a better venue for institutional takers because of its low fees and conventional trading firms will be connected to it. In that case many exchanges will be failure in comparison with CME.

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