Crypto Corner: Autospreader® Tricks & Tools for Cryptocurrency Trading
Crypto! How it pushes TT beyond the boundaries of our traditional exchange support, expectations and requirements for order routing and executions. In this edition of Crypto Corner, I wanted to share a modified version of a popular TT Community post that provides multiple tips and best practices for using Autospreader so you can gain an edge trading cryptocurrencies.
In general for crypto, we’ve had to create or recommend various tricks specific to cryptocurrencies and specific to certain crypto exchanges. Most of these recommendations pertain to Autospreader because it’s a very popular tool for relative value automated spread trading strategies. Depending on where you’re located, you could trade crypto on TT on as many as six different crypto venues (BitMex, CoinFLEX, Deribit, Coinbase, CME and ICE); that opens up a lot of relative value trading opportunities between similar but not fungible instruments as I mentioned in my interview with Mark Lamb of CoinFLEX.
With TT’s recent connection to Deribit, I thought it would be worthwhile to mention a couple basic suggestions for setting up Autospreader and review several of the Autospreader Rules that you should or may want to consider using in your crypto spread trading.
Setting Up Autospreader
Autospreader Ratios
Based on the way Autospreader works, Autospreader order quantities must be entered in whole number integers. If you want to trade exchange quantities in increments under 1, you need to define your ratio in terms of what order size you’ll want to work at your smallest unit size. For example, you could define the ratio setting between CoinFLEX and Deribit as .1 (CoinFLEX) to -900 (Deribit, if BTC is at 9000). To work a full one lot BTC on CoinFLEX, you would enter a 10 lot order quantity in the synthetic market.
Location of Algo Logic
If you’re trading cross exchange, it makes sense to have your Autospreader logic located in proximity to your quoting leg(s) exchanges. If you’re quoting Coinbase to hedge on CME, you want your logic running out of our Coinbase “algo servers,” while hedging on CME in Aurora. To optimize for this setting, you must know that whatever leg you have selected as Leg 1 of the Autospreader is where the algo logic will exist. Thus, typically, someone would select their quoting leg as Leg 1.
Autospreader Rules
TT Quote Throttle
Exchange recommendation: BitMEX and Deribit.
This rule lets you slow down and throttle order submissions, and have different settings for orders moving closer to the inside market or higher in quantity (“Inside” adjustments) versus orders moving away from the inside market, or reducing quantity (“Outside” adjustments). A throttle is essential to use on BitMEX and could also be useful on Deribit, where limits are initially as low as two requests per second for new users, or on any exchange where you may find yourself getting “overquoting” rejections. Example settings for Deribit could be 100 on “outside” and 1000 on ”inside.” Also, you may find success emailing exchange support requesting an increase in quoting limits. Deribit, for example, offers tiers (read about it here) to higher volume customers for an enhanced autospreading experience.
Minimum Increment Quote Qty and Minimum Increment Hedge Qty
Exchange recommendation: Deribit and CoinFLEX.
This rule is 100% required to spread-trade with Deribit because you need to force order calculations to submit order quantities on the nearest 10 lot increment. To implement this rule for Deribit, change the default setting from 5 to 10. For CoinFLEX, set it to .0001 to avoid any rounding issues that may try to make adjustments smaller than the minimum trade size.
Liquidity Based Backoff Tick
Exchange recommendation: BitMEX and Deribit.
This rule is helpful on exchanges like BitMEX and Deribit, which have enough liquidity that you can hope to “squeeze” for a better hedge price AND exchanges that have significant disparities in their maker/taker commission structures.
Inside Smart Quote with/without Limit
Exchange recommendation: BitMEX, Deribit.
If you’re far enough away from the inside market, and you don’t want to “waste” quotes or risk over-quoting, the two variations of this rule will greatly reduce your price adjustments by providing bands within which you won’t refresh quotes.
Prevent Quote & Hedge Cross
Exchange recommendation: BitMEX, Deribit, Coinbase or any exchange with differences between maker and taker fees.
Since Autospreader does not currently support native exchange order types like Post-Only, we created a rule that will do its best to not take liquidity and cause an exchange “taker” fee. The feature will attempt to back off one increment rather than taking liquidity either on spread quoting or hedge legs. Your only risk of taking liquidity is if market conditions change after Autospreader has done its price check and the order is in flight.
Cancel On Disconnect (CoD) Control from an Exchange Website
Exchange recommendation: Deribit.
On the Deribit website, a user has control over whether or not their orders stay in the market upon an API disconnect. What this means when using TT is that if you have an Autospreader that breaches quote limits, your connection will be dropped for up to 20 seconds. During the disconnect, your orders in the market will remain or get cancelled based on your CoD setting. Anyone quoting markets or using Autospreader (especially if they’re using Queue Holder) will likely want to check the COD box in the Deribit API settings on the Deribit website.
Reload Functionality
Exchange recommendation: All exchanges.
Reload lets a user increment a large order into the market in a set unit size. It is a setting at the top of the Autospreader settings window. Reload’s most obvious benefit is that it reduces the size you could get “hung” on if a hedge leg is “missed.” But equally interesting in my opinion, is that, as an example, if you have 100 units in 20 lot increments, the smaller units will reduce the need of liquidity on the hedge leg, enabling you to work a more competitive price on your quote leg. Reload lets you set “better” prices for subsequent reload units in “offset” ticks and allows you to set a time delay before reloading.
Queue Holder Functionality
Exchange recommendation: You be the judge!
Where quote limits are high enough and liquidity is significant, stacking an order book at multiple levels can have some position-in-queue advantages that can help a user increase their chance of getting filled or getting “paid” for posting liquidity; just be careful of order book sweeps, as you could easily end up with multiple units worth of positions. This is probably the riskiest of the features I’m highlighting.
For more information about Autospreader, including how to configure and utilize this powerful spread trading tool, check out Introduction to Autospreader in the TT Help Library. Or reach out to us by filling out this form, and your local TT representative will get in touch with you to answer your questions.
Interested in learning more about TT crypto? Subscribe to our TT Community cryptocurrency space to stay updated on the latest crypto-focused content and check out our recent Trade Talk blog posts, Crypto Corner: John Jansen, CEO of Deribit and Deribit (!!) and More: TT’s Latest and Greatest for Crypto Trading in 2020.
Good luck trading!