Market Making and Execution Algorithms in Crypto Markets
Summary
This article surveys execution algorithms, market making, and crypto market microstructure. It divides execution into scheduling parent orders over time, choosing market or limit orders for each child order, and routing orders across venues. VWAP, TWAP, and participation-based scheduling are named as basic approaches; the discussion emphasizes that crypto's thinner liquidity can make even small child orders costly and that limit orders risk falling behind a schedule. It also describes market makers as earning compensation for immediacy while bearing inventory and adverse-selection risk.
The market-making discussion considers inventory-based quote adjustments, order-flow intensity by depth, uncertainty about fair value, competing order books, and order arrivals modeled as Poisson or Hawkes processes. The later, partial text turns to exchange fee differences and their effects on displayed prices, price discovery, and fee incidence between makers and takers. These are conceptual frameworks rather than a complete strategy specification or empirical test. The document is truncated, so several discussions are incomplete; its claims about order-flow shape, routing, and fees should be treated as modeling considerations, not universal market facts.
Key ideas
- Execution can be organized into parent-order scheduling, child-order placement, and smart routing across exchanges.
- Market orders offer execution certainty but can incur slippage, while limit orders may fail to fill on schedule.
- Market makers earn compensation for providing immediacy while managing inventory exposure and adverse selection.
- Order-flow intensity, fair-value estimation, competing quotes, and order-arrival dynamics inform quote placement.
- Exchange fee structures can affect displayed prices, price discovery, and how costs are shared between makers and takers.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.