APT-Based Crypto Market Making with Spot and Futures Returns

Summary

This tutorial develops a market-making approach that estimates a futures contract’s fair price from spot-market returns. Its basic arbitrage pricing theory relationship assumes futures and spot returns move one-for-one with no intercept; the strategy uses that forecast to center a grid of bid and ask quotes. It also adjusts quote depth according to inventory, limits exposure, and discusses estimating returns from smoothed past prices to reduce noise. The example uses Bitcoin spot and futures data, with backtests described as including a maker rebate.

The document proposes extending the model with returns from other venues and assets, exchange-specific information, order-book imbalance, funding, and open interest. It outlines further cross-asset and cross-exchange signals, while noting that very short horizon forecasts depend on venue-specific latency, liquidity, and order flow. The material is educational, and the supplied excerpt does not provide complete backtest results or enough detail to assess robustness. Its assumptions, rebate, and data setup constrain how directly the example transfers to live trading.

Key ideas

• The baseline model forecasts futures returns from spot returns using a one-for-one relationship with no intercept.
• The forecasted return is used to estimate fair value and place grid-based market-making quotes.
• Quote spacing responds to inventory, while position limits constrain exposure.
• The tutorial suggests adding cross-venue, cross-asset, and order-book signals.
• Backtest assumptions include a maker rebate, and the excerpt does not establish live performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.