Author: João Victor Vasques
If you've just read our blog post about advanced trade and started trading more often, you might notice that sometimes it's hard to time the market and no one can stay awake all night (or can you?). That's why there are bots that might help you to create some good strategies to buy and sell crypto without spending hours in front of a chart. More important than that, with bots you are able to place hundreds of orders in minutes. So let's learn a bit more about some strategies to have in mind when you think about algo-trading and how you could set up a bot.
What is market making?
Market making, in crypto, means providing liquidity on a defined cryptocurrency by submitting both buying and selling limit orders on a crypto exchange’s order book. Market makers make a profit by collecting the bid-ask spread over multiple trades. This means aiming to consistently buy low, and sell high as other traders sell to your buy price, and buy from your sell price. In securities markets this is still mainly something done by brokers but in crypto it is much more democratized and possible by nearly any skilled and enthusiastic individual.
Strategies to trade with market making
Being a pro market maker isn't only about choosing a spread size, starting to send limit orders to the machine, and after that forgetting about it. There are some questions you should keep in mind while preparing your strategy, some of them are: Should you keep the spread fixed all the time? Should you change it according to market conditions? What should you do when there is a price trend in the market? How to detect market directions? What should you do if there is a price spike? When should you stay out of the market and for what reason? What can you lose, and how much are you putting at risk?
Only with all those questions at least partially answered you are able to find a pro strategy to act on the market, and then take it to a trader bot, like Hummingbot.
Hummingbot, how to use it, how to trade like a pro.
Hummingbot is an open source software platform built to democratize algorithmic trading, empowering all levels of traders, from beginners to seasoned professionals to apply arbitrage and market making strategies specifically to crypto markets. Launched in 2019, they are the leading trading bot project in crypto, with 33k+ installs and 30+ connectors to exchanges, Blocktane being one of these exclusive few.
Today, our focus is on the two most powerful capabilities of the Hummingbot infrastructure, arbitrage and market making
Setting up the bot!
To set up the bot you need to follow these steps:
- Create your strong password and keep it safe.
- Create the API keys on Blocktane which you will be using to market make and then connect the exchange to hummingbot.
- After that, you are able to choose your market making strategy, for this article we will focus on setting up pure market making.
- Choose the pair you will be trading. Give careful consideration on the pros and cons of liquidity versus mispricing. Select the percent or profitability in each transaction, it's up to you to see what number is best for your strategy. High profit per trade will probably mean less trades, less profit per trade may mean more frequent trades. Consider the risks of both approaches.
- Leave unchanged any advanced settings unless you have carefully studied Hummingbot’s documentation. A basic strategy without these further configurations can still operate successfully while you learn how to refine it.
- Define the file name for your strategy.
- Start placing orders!
Is it 100% successful?
There is no perfect perfect combination for algo trade, what does exist is an unique method of bot trade for each individual, and it's up to the investor to find the perfect match for his/her requirements, if you want more or less trades, if you want to try highest percentage rates per transaction, it's up to each person to find the perfect way to trade. What works for one might not work for another, and you'll only know what's your perfect method by testing it.