DEVELOPING OF CROSS-EXCHANGE MARKET MAKING WITH DYNAMIC SPREAD CONTROL

Abstract

This study has the objective to develop a cross-platform market-making strategy, which is placing buy orders and sell orders in a low-liquidity market (target market), by referencing prices from a high-liquidity market (reference market), along with dynamic control of the price spread between bid price and ask price (spread) according to the level of market volatility. This strategy uses key parameters, namely base spread, which is a fixed value of the initial price range, and range factor, which is a multiplier used to adjust the width of the spread according to the volatility in the target market. This strategy was tested with one-day historical data of the AVAX/USDT digital asset pair from the AscendEx platform (target market) and Binance (reference market) by implementing minute by minute market making strategy adjustments. And using total return and the rate of order matching as performance indicators. The analysis found that the base spread in the range of 0.15-0.20 and the range factor not exceeding 10 provide the best results, both in terms of total return and the rate of order matching. And when comparing the performance of the dynamic strategy with the fixed strategy, it was found that the dynamic strategy shows superior performance, both in terms of return value and flexibility in risk management.