Navigating Market Microstructures: Insights from a Crypto Market Maker
As a leading market maker, Artis’ primary objective is to leverage the intricacies of Crypto market microstructures to benefit our clients. Market makers exist to fulfil orders and provide liquidity in any asset market. The larger and deeper the financial market, the less Micro-structures influence market dynamics, price and volumes. In Crypto, microstructures are distinct due to the market's relative immaturity, the diversity of trading platforms, the lack of professional participants and the digital 24/7 nature of assets. Artis specialises in decoding these microstructures to optimise trading strategies, ensuring the best possible outcomes for our clients.
Let’s look at how we utilise our understanding of market microstructures to enhance our services and arbitrage strategies, focusing particularly on the role of order flow, market depth, and the unique microstructure challenges inherent to trading in crypto markets.
Why Microstructures matter
At its core, market microstructures refers to the mechanisms and rules that facilitate trading in financial markets regardless of the type of asset. This can include everything from the way orders are processed and executed to how prices are determined by liquidity and trading volumes. In crypto, these microstructures have a much bigger impact on market dynamics due to the variety of trading venues (exchanges), nascent order flow technologies and the digital nature of the assets involved.
Order flow, the stream of buy and sell orders submitted to a market, is the lifeblood of any financial market. For market makers, understanding and predicting order flow is essential. In Crypto markets, the decentralised and fragmented nature of trading venues creates both challenges and opportunities. On one hand, less is actually more when it comes to order flow; however, it is a double-edged sword. Market makers must navigate these fragmented markets, often maintaining a presence on multiple exchanges to manage their order flow effectively and to ‘create’ liquidity for assets and clients to enable smooth order flow fulfilment and pricing.
Artis’ expertise lies in interpreting and predicting this order flow to maximise our client’s returns. We operate across multiple exchanges, using sophisticated algorithms to manage order flow efficiently and effectively for our clients.
In crypto markets, market depth refers to the volume of orders at different price levels on an order book and it can be HIGHLY variable, especially on smaller exchanges where there are fewer orders or during times of high volatility and market stress. As a market maker, we contribute significantly to market depth AND liquidity. By strategically placing buy and sell orders at various price levels, Artis not only ensures smoother and more efficient market operation but also creates a more stable trading environment, which is in the best interest of our clients.
Arbitrage Opps & Challenges
By its nature, Crypto markets tend to be fragmented and this leads to price discrepancies across different exchanges. For market makers and their clients, these discrepancies are also opportunities. By simultaneously buying a digital asset on one exchange where the price is lower and selling it on another where the price is higher, they can exploit these differences for profit. This not only requires a deep understanding of market microstructures but also a highly efficient and automated trading infrastructure to enable swift execution before these ‘opportunities’ disappear.
However, arbitrage strategies can also be used as a tool to incentivise asset trading and engage with organic participants in the market. Leaving this window of opportunity for organic participants can be a win-win situation for both traders and clients if the incentives result in more participants actively trading and increased liquidity in the market overall.
Crypto markets present many unique challenges when it comes to microstructures. High volatility, the prevalence of algorithmic and high-frequency trading, and regulatory uncertainties create a dynamic and often unpredictable environment. Market makers and their clients must continuously adapt their strategies to these changing conditions, using advanced algorithmic strategies and sophisticated risk management techniques to achieve the desired outcomes.
At Artis, our deep understanding of market microstructures lies at the heart of our trading and arbitrage strategies. We believe by mastering order flow, enhancing market depth, and skillfully exploiting arbitrage opportunities, we can maximise results for our clients and help them to achieve their liquidity goals. As Crypto continues to evolve, so do our strategies and the technologies we use to ensure we remain at the forefront of market-making innovation and expertise.
Reach out to ck@faculty.group if you want to learn more.
About Artis
Artis is a client-focused market maker that works closely with our clients to provide tailored, synchronised solutions that meet their specific requirements every step of the way. Our USP is our ability to customise services around the needs of our clients, regardless of market conditions or business life cycle. We help our clients navigate the complexities of market making, treasury management and CEX support in order to achieve their critical milestones, increase the number of token holders, build their user base and extend their financial runway. We believe in building long-term relationships that grow with our clients to deliver financial success for everyone.
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