Lessons from Crypto Arbitrage, Market Making, and Strategy Testing
Summary
This first-person account traces a programmer’s path into cryptocurrency trading, from mining Litecoin to cross-exchange arbitrage, grid strategies, market making, and taking liquidity. It describes how apparent opportunities changed as prices moved, automated competitors arrived, and spreads narrowed. In its market-making discussion, the author sketches a lead-follower approach: estimate a venue’s fair value from its mid-price and the difference between that price and a faster market, then use the estimate to inform quoting.
The account’s evidence is personal experience rather than a controlled study. The author recounts selling Litecoin early in a bull run, losing value after holding mined coins through a decline, and failing to make market making profitable despite several revisions. It also reports that a market-taking strategy’s live results did not match an initially promising parameter run. These examples highlight competition, changing conditions, fees, latency, and execution slippage as practical limits. The author is exploring tick-level backtesting and argues that simulated fills should reflect available market data rather than assume execution at the strategy’s submitted price.
Key ideas
- Cross-exchange arbitrage opportunities can shrink as automated competitors enter and compete on fees.
- A lead-follower market-making idea estimates fair value from a faster venue and the price gap between venues.
- The author’s mining and trading experience illustrates how price declines and delayed selling can erase apparent gains.
- Promising parameter results did not persist in the author’s live market-taking experience.
- Backtests for fast strategies should account for execution and slippage using market data.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.