security | server | database | trading platform | | 4 min read

How do you fine-tune liquidity on your trading platform? Try algo bots!


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Algorithmic trading bots are usually associated with day traders and scalpers, who use trading advisors to automate their strategies. However, the algorithmic trading functions can not only be used in private activity, but can also be extrapolated to the entire platform, opening up new opportunities to improve the experience for all users. In this publication we will talk about how the Algo Studio module in Crypto Liquidity Aggregator solution can help you arrange a higher quality liquidity for a crypto brokerage or exchange business.

Algo Studio bots and how they can improve liquidity

A market making crypto bot, or robot as it is also called, is a code that automatically performs actions according to predetermined conditions. If we are talking about algo trading bots for private traders, the scripts of their behavior are bought from popular services-developers of bots or written independently.

Algo trading bots for the cryptocurrency exchange facilitate the trader's routine work, and even perform analysis. Of course, this does not mean that they have even a semblance of artificial intelligence, but they can automate a significant part of manual analysis functions, which is an absolute advantage.

A retail trading bot can keep all statistics alive, open and close orders, send notifications to your phone about important events and new opportunities.

For example, if a market making bot strategy is properly designed, it can independently buy Bitcoin 5% cheaper than the current rate when the price drops, and then place a sell order 10% more expensive, thus generating a 15% profit.

Market maker bots for the administrative component of the exchange, that is, for the owners, work in a similar way, but are much more complex in their structure and action algorithms. For example, market maker bots for working with crypto assets can help provide better liquidity on the trading platform. A set of such bots is delivered in Algo Studio, the Crypto Liquidity Aggregator component.

In general terms, Algo Studio allows you to run algorithmic trading systems for your crypto trading platform, thus automating processes that would otherwise require manual control. Several algo trading bots included in Algo Studio feature the ability to automate liquidity management processes, among other things.

The main indication of quality liquidity on your platform are quotes with the best prices on high positions in the market depth and zero slippage. Let's take a closer look at them and consider situations where integration of Algo Studio can help you to achieve this status.

Lack of necessary symbols. Solution: Synthetic Symbol Market Making

Synthetic Symbol Market Making Algo allows you to create a synthetic trading symbol based on the other two. This crypto market making bot can be especially useful in the launch phase or for the companies operating in the emerging markets (India, Mexico, Turkey for example) or in the south-estearn Asia countries like Thailand, Philippines, Vietnam etc., where it’s hard to find a ready-to-go liquidity for their relevant currencies against crypto.

Market making bot usage scenario.

You have chosen a liquidity provider that completely satisfies you in terms of trading conditions, but for some reason cannot provide the symbol you need.

To create the desired synthetic symbol, the crypto market making bot takes the prices of existing pairs — for example, BTC/EUR and EUR/CHF. As a result, you can get the symbol BTC/CHF, which fully meets the requirements for the execution speed. And it’s not just the new symbol pricing generation — if the client opens an order on a synthetic symbol, the algorithm will autonomously open the corresponding positions on existing symbols to maintain proper risk management.

Insufficient volume or frequency of quote updates. Solution: Classic Market Making Algo

Classic Market Maker Algo retrieves the best BID and ASK for a specific instrument from any external source, and then generates the market depth according to the set parameters.

Market making bot usage scenario.

Suppose you have a liquidity provider that sends quotes for specific instruments (such as unpopular tokens) with low volume or updates these quotes with insufficient frequency. That said, you want to provide this token to your clients with more frequent updates in market depth or with more representative volume.

When connecting Classic Market Making Algo, the bot configuration sets the appearance for market depth and the volumes to be provided at each level for a particular instrument. To make the displayed volumes look natural, the bot allows you to set volume values for each level in the market depth with a certain interval. The price updates displayed by the bot are rigidly tied to the values supplied by the liquidity provider.

No quotes source for the instrument. Solution: Initial Price Making Algo

The algorithm allows to provide initial quotation for a newly created trading instrument, the sources of liquidity for which cannot be accessed.

Market making bot usage scenario.

Consider the case of a newly issued token that is not listed on any exchange, but it still requires stable quotation flow.

The algorithm ties a newborn token to an existing "anchor" currency, be it dollar, euro or BTC, etc., creates a base quote, and then runs it into the market depths and builds up the number of layers.

A need to diversify liquidity. Solution: Exchange Traded Funds Algo

Exchange Traded Funds Algo allows you to create a custom trade index based on existing instruments and offer it to retail clients as an additional investment instrument.

Market making bot usage scenario.

You want to diversify the liquidity on your platform by offering your clients additional investment opportunities through new investment instruments that could be delivered by liquidity providers.

This algorithm gives you the ability to combine existing trading symbols into one investment portfolio (index), and execute orders on it on liquidity providers in the same way as you would with more conventional instruments. An example of such an index could be, for example, the five most traded cryptocurrencies on your platform. The algorithm allows setting the share for each of them in the common basket (50% for Bitcoin, 30% for Ethereum, 20% for other currencies, like LTC, XRP and BCH).

An important final note

It is important to remember that the market making bots described above are useful, but rather accompanying measures in providing high-quality liquidity. The main thing that will help you to seamlessly fulfill clients' orders and have confidence in the volume and quotes flow is to have more than one liquidity provider. Having multiple suppliers gives you true operational freedom and independence that allows you to run your business as you see fit.

Contact us to learn how to ensure independent liquidity aggregation with Crypto Liquidity Aggregator.

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