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Multi-Pair Spot Market Making with Volatility-Adjusted Spreads

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Summary

The document describes a Hummingbot strategy for providing bids and asks across several spot markets from one instance. Users choose the markets, the asset used to supply liquidity, order size, spread, and target base inventory. Optional inventory skew adjusts quoting around a target allocation, while volatility-based settings use recent mid-price data to adapt spreads. Orders can also be refreshed according to elapsed time, price movement, and maximum age.

The material is a configuration overview rather than a performance study: it gives parameter descriptions and defaults but no trading results, backtest, or detailed execution rules. It is aimed at centralized spot order books. The document does not explain how volatility is estimated beyond its interval and averaging controls, or how exchange fees, adverse selection, and inventory risk affect returns. Treat the settings as implementation options, not evidence that the strategy is profitable.

Key ideas

  • A single strategy instance can quote multiple spot trading pairs.
  • The trader configures the liquidity asset, order size, initial spread, and target inventory.
  • Inventory skew can adjust quoting when holdings diverge from the target allocation.
  • Recent market volatility can be used to modify spreads, subject to a maximum spread setting.
  • Order refresh timing, price tolerance, and maximum age govern quote replacement.

Tags

Market makingVolatilitySpot marketsPosition sizingExecution
Full text
# `liquidity_mining`


# `liquidity_mining`

## 📁 Strategy Info

* Folder: [/hummingbot/strategy/liquidity_mining](https://github.com/hummingbot/hummingbot/tree/master/hummingbot/strategy/liquidity_mining)
* Configs: [liquidity_mining_config_map.py](https://github.com/hummingbot/hummingbot/tree/master/hummingbot/strategy/liquidity_mining/liquidity_mining_config_map.py)
* Maintainer: None

## 📝 Summary

This strategy allows market making across multiple pairs on an exchange on a single Hummingbot instance. This is achieved by enabling users to configure the markets they would like to participate in and other market-making configurations. Volatility-Spread adjustment is another key feature of this strategy, where the spreads are dynamically adjusted based on the volatility of the markets.

## 🏦 Exchanges supported

* SPOT CLOB CEX

## 🛠️ Strategy configs

| Parameter                    | Type        | Default     | Prompt New? | Prompt                                                 |
|------------------------------|-------------|-------------|-------------|--------------------------------------------------------|
| `exchange` | string | | True | Enter the spot connector to use for liquidity mining) |
| `markets` | string | | True | Enter a list of markets |
| `token` | string | | True | What asset (base or quote) do you want to use to provide liquidity? |
| `order_amount` | decimal | | True | What is the size of each order (in [token] amount)? |
| `spread` | decimal | | True | How far away from the mid price do you want to place bid and ask orders? |
| `inventory_skew_enabled` | bool | True | False | Would you like to enable inventory skew? (Yes/No) |
| `target_base_pct` | decimal | | True | For each pair, what is your target base asset percentage? |
| `order_refresh_time` | float | 10 | False | How often do you want to cancel and replace bids and asks |
| `order_refresh_tolerance_pct` | deciimal | 0.2 | False | Enter the percent change in price needed to refresh orders at each cycle |
| `inventory_range_multiplier` | decimal | 1 | False | What is your tolerable range of inventory around the target, expressed in multiples of your total order size? |
| `volatility_interval` | int | 300 | False | What is an interval, in second, in which to pick historical mid price data from to calculate market volatility? |
| `avg_volatility_period` | int | 10 | False | How many interval does it take to calculate average market volatility? |
| `volatility_to_spread_multiplier` | decimal | 1 | False | Enter a multiplier used to convert average volatility to spread |
| `max_spread` | decimal | -1 | False | What is the maximum spread? |
| `max_order_age` | float | 3600 | False | What is the maximum life time of your orders (in seconds)? |

## 📓 Description

[Trading logic](https://github.com/hummingbot/hummingbot/blob/master/hummingbot/strategy/liquidity_mining/liquidity_mining.py)

## ℹ️ More Resources

:fontawesome-solid-globe: [Hummingbot Miner Help Center](https://support.hummingbot.io): Check out our latest announcements, campaigns, documentations, handy articles and much more.

:fontawesome-solid-book: [Demystifying liquidity mining rewards](../../blog/posts/demystifying-liquidity-mining-rewards/index.md)

:fontawesome-brands-youtube: [Liquidity Mining Explained | For New Users](https://www.youtube.com/watch?v=ME5osB8sX_s): Learn about Liquidity Mining and how to set up a market-making bot to earn rewards in an exchange.

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.