Adjusting Market-Making Quotes for Transaction Costs
Summary
This document explains a configuration option that adjusts bid and ask quote prices to account for exchange transaction costs. It describes percentage-based maker fees and fixed fees, and notes that enabling the option changes the proposed prices; it is disabled by default. The tool also warns when an adjusted quote moves substantially from its original level and skips orders when the adjusted buy price is nonpositive.
A market-making example shows why fees matter: quoting around a mid-price with a nominal spread can still produce a loss when percentage and fixed charges are included. Moving the bid lower and the ask higher to incorporate those costs improves the example’s outcome after fees. The adjustment is a practical quoting aid, but the example does not establish profitability across venues or market conditions. Actual fee schedules, fill probabilities, inventory risk, and price movement between fills also affect realized results.
Key ideas
- Quote adjustments can account for percentage fees and fixed transaction charges.
- The feature moves bid and ask prices farther from the mid-price to allow for costs.
- A quoted spread can appear profitable before fees and lose money after fees.
- The example illustrates one fee setup and does not account for fill likelihood or inventory risk.
Tags
Full text
# Adding Transaction Costs
# Adding Transaction Costs
**Updated as of `v0.28.0`**
This feature lets you take into account the transaction cost incurred on the exchange from bid and ask orders. For a bid order, it reduces the bid order price by the fee. For the ask order, it reduces the price by the fee. This allows you to consider the transaction cost to profit (or not incur a loss).
!!! note
This puts your order prices further away from the mid-price.
## `add_transaction_costs`
Whether to enable adding transaction costs to order price calculation.
** Prompt: **
```json
Do you want to add transaction costs automatically to order prices? (Yes/No)
>>> Yes
```
## How it works
When the `add_transaction_costs` parameter is set to True, the client adds the transaction costs to the prices and adjusts the price proposal.
Type `config add_transaction_costs` to set the value for the parameter. If you respond `Yes`, the parameter is set to `True`, and if you type `No`, the parameter is set to `False`. This parameter is set to `False` by default.
Note that we currently display warnings if the adjusted price post adding the transaction costs is 10% away from the original price. If the buy price with the transaction cost is zero or negative, it is not profitable to place orders, and orders will not be placed.
## Order price calculation with transaction cost
Below, `fee_pct` refers to the percentage maker fees per order (generally common in Centralized exchanges), while `fixed_fees` refers to the flat fees (generally common in Decentralized exchanges).
### Calculating the bid order price
### Calculating the ask order price
### Example - when transaction cost is important
You are market making for the `ETH-USD` pair. The `order_amount` parameter is set to 1, and the `bid_spread` and `ask_spread` as set to 1 (representing 1%). Suppose the mid-market price of ethereum and USD is \$200. When the `add_transaction_costs` is set to `False`, the bid order price is 1% below the mid-market price, and the ask order price is 1% above the mid-market price, $198 and $202, respectively. Suppose the fee percentage (`fee_pct`) is 1% and the fixed fee (`fixed_fees`) is $0.50 for each transaction. The spread above does not take into account these transaction costs and could hurt your profit. Your potential profit without taking into account the fees is $4. The fees incurred could be 1 dollar plus 1% times the value traded 1% x (199 + 200), which equals $3.99. Instead of profiting $4, you are losing $4 - ( $3.99 + $1) = - $0.99. When the `add_transaction_costs` is set to `True`, (using the formula above), the ask order price is $203, and the bid order price is $197. The profit before the transaction fees is $6. The transaction fees amount to $1 + .01 ( $197 + $203) = \$5.
Thus, your profit is \$1. Here, adding the transaction costs to the calculations was the difference between a loss and a profit.Shown in full with attribution under the source's licence. Licence: Apache-2.0
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.