An Introduction to Market Making

Market makers

Bitcoin futures priced

Futures Price = Spot price ∗(1+rf​−d)
rf = risk-free rate on annual basis, and d = dividend
  • The changes for risk-free rate from an annual to a daily basis.
  • There is no dividend in bitcoin, “d” should be removed.
​Bitcoin Futures Price = bitcoin Spot price∗[1+rf∗​(365x​)]​
x = number of days to expiry.
United States Government Bonds-US yield curve
Binance Flexible Savings

Fee structure multiple exchanges

  • Volume generated by an account
  • Leverage (Some exchanges charge higher fees when leverage is higher)
  • Market Maker/VIP Programs (special deals)
  • Exchange tokens (For example, BNB, FTT, BTSE, LEO, OKB, HBT)
  • Spot or futures contracts (for trading spot, usually higher fees are charged)
  • Signed up with a referral link

Delta neutral

Inverse vs. Linear

ep = entry price    ex = exit price   N = number of contractsPNL = (1/ep - 1/ex) * N 
PNL = (1/16000 - 1/8000) * 16000 = -1
60 000 * 1 * (1/600 - 1/700) = 14.286 XBT
60 000 * 1 * (1/600 - 1/500) = -20 XBT

Fair price

Bitmex indices
Deribit
Fair price intuition. Distance from mid-on either side.

Post-Only

Bitmex
Deribit
FTX

Skew

Covid-19 flu season

Basis market making

Bid - buy price in the order book
Ask/Offer = sell price in te order book
Delta = The value of your position in either the home or foreign currencyTheta or Carry = Amount of money you can lose as time passes byBasis = futures price - spot p
Buy $2000 worth of BTC spot
Sell 2000 contracts XBTZ20 (December expiry) for example on Bitmex
Sell the remaining BTC at expiration of the december futures
The right side is Bitmex, and the left side is Binance.

Front running

Microtrader quoting: Wider quotes in higher volatility

Fee structure multiple exchanges continued

Futures
maker fees: -0.025% (rebate)
taker fees 0.075%
Futures
maker fees: -0.025% (rebate)
taker fees 0.075%
Spot/Margin trading
maker fees: 0.1%
taker fees: 0.1%
Futures
maker fees: 0%
taker fees 0.06%
Spot/Margin trading
maker fees: 0.1%
taker fees: 0.15%
Futures
maker fees: 0.02%
taker fees 0.05%
Spot/Margin trading
maker fees: 0.2%
taker fees: 0.2%
Futures
maker fees: 0.02%
taker fees 0.05%
Spot/Margin trading
maker fees: 0.1%
taker fees: 0.1%
Futures
maker fees: 0%
taker fees 0.06%
Spot/Margin trading
maker fees: 0%
taker fees: 0.07%
Futures
maker fees: 0%
taker fees 0.07%
Futures
maker fees: -0.025% (rebate)
taker fees 0.075%
Spot/Margin trading
maker fees: 0.02%
taker fees: 0.07%
Futures
maker fees: 0.02%
taker fees 0.07%
Futures
maker fees: 0.025% (rebate)
taker fees -0.075%

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Romano RNR

Romano RNR

derivatives trader

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