Crypto Order Book Market Making and Inventory Risk
Summary
This article describes a crypto market-making strategy that places buy and sell limit orders on opposite sides of a calculated mid-price. It explains how a price range and minimum step determine quote offsets, how the strategy submits paired orders, and how it tracks order status and completed trades. The proposed edge comes from capturing the spread while supplying liquidity, unlike same-price volume-generation tactics discussed as a contrast.
The article also outlines the approach’s limits: its linear quote adjustment does not respond well to changing volatility or order-book conditions, and one-sided fills can build unwanted inventory and consume capital. Suggested mitigations include inventory limits, hedging, and skewing quotes toward the position that reduces exposure. The accompanying implementation is presented as a learning framework, with no live-market validation; it does not provide performance evidence, and readers are cautioned to backtest and assess risk before use.
Key ideas
- The strategy quotes buy and sell orders at offsets around a mid-price to seek spread revenue.
- Quote distance shrinks linearly with pending-order count, a simple rule that may lag changing market conditions.
- One-sided fills create inventory exposure that can grow during directional markets.
- Inventory limits, hedging, and inventory-sensitive quote skew are proposed as risk controls.
- The example is an unvalidated learning framework and supplies no evidence of live profitability.
Tags
Cited by
- Strategies Hummingbot PMMSimpleController (by hummingbot, Apache-2.0) faithful port: 2+2-level symmetric pure market making on WLDUSDT.BINANCE 1m, 1%/2% spreads around mid, per-level triple-barrier executors (SL 3%, limit TP 2%, 45-min time limit, 1.5%/0.3% trailing stop), 5-min refresh, 15-s cooldown, 20x
- Hypotheses Hummingbot PMMSimpleController (by hummingbot, Apache-2.0) faithful port: 2+2-level symmetric pure market making on WLDUSDT.BINANCE 1m, 1%/2% spreads around mid, per-level triple-barrier executors (SL 3%, limit TP 2%, 45-min time limit, 1.5%/0.3% trailing stop), 5-min refresh, 15-s cooldown, 20x
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.