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bbullero


Total Posts: 3
Joined: Jul 2021
 
Posted: 2021-07-19 17:22
I don't understand why BitMEX trades like it trades. Maybe the order flow does not make sense. Maybe it does? Maybe I am completely clueless.

Maybe someone here could explain it to me?

Thanks


Its Grisha


Total Posts: 91
Joined: Nov 2019
 
Posted: 2021-07-19 21:34
I think you're going to have to be a little more specific than that.

But things on mex are kind of weird because of the massive taker fee and rebate relative to a pretty thin tick. On a 30k btc, rebate is 15 ticks with a 35 ticks taker fee. So order book behavior reflects this.

"Nothing is more dangerous to the adventurous spirit within a man than a secure future."

bbullero


Total Posts: 3
Joined: Jul 2021
 
Posted: 2021-07-20 06:31
@Its Grisha, it is exactly the behavior of the book and the order flow make me wonder if I have missed something important.

As an example, let us consider the XBTUSD perpetual swap. It has 50 cent tick size and trades like a "large tick stock" i.e. one tick wide 99.99% of the time. Movements in the price are driven by the top of the book queue imbalance. What I find little bit strange is the fact that once the bid or the ask depletes, the following price movement is often quite dramatic ~20-40 ticks.

Moving to the order flow. As per usual, the marketable flow is driven by the queue imbalance. This is normal. What is peculiar, however, is the fact that when the book is balanced it is like the natural flow vanishes. Then when the imbalance starts to build up the flow comes in and nukes the price up or down. The flow is very aggressive and seems to be very informed.

What I am failing to understand is who creates that flow. I am able to find 3 reasonable motives but I'd like to hear different opinions before I introduce correlation between ideas.


edit:

Its Grisha


Total Posts: 91
Joined: Nov 2019
 
Posted: 2021-07-20 19:49
I think a lot of this can be explained by the fee structure i mentioned, 7.5 bps taker fee, 2.5 bps rebate.

> It has 50 cent tick size and trades like a "large tick stock" i.e. one tick wide 99.99% of the time.

As a market maker, with the large rebate you can be wrong by 15 ticks before you stop competing on price priority. So despite the relatively thin tick, this trades 1 tick wide because quoting at the 1 tick touch is profitable as long as fair value is less than 2.5 bps lower than your bid.

> What I find little bit strange is the fact that once the bid or the ask depletes, the following price movement is often quite dramatic ~20-40 ticks.

Again, fee structure. The massive taker fee of 7.5 bps is 35 ticks which basically lines up with your numbers. As a taker, to remove liquidity from the book you need to be right by at least 35 ticks to make money.

So for example, price on other exchanges goes up. Market makers start by creating a very large imbalance on the bid, but it is not worth taking liquidity yet. Then once the "arb" finally exceeds 7.5 bps, there is a market order race. This is the "informed flow" that blasts the price by 40 ticks at a time.


"Nothing is more dangerous to the adventurous spirit within a man than a secure future."

bbullero


Total Posts: 3
Joined: Jul 2021
 
Posted: 2021-07-20 20:38
@Its Grisha, makes perfect sense.

I already went to the deep end and was thinking that maybe they fake the marketable flow to keep the price at par with other exchanges with more natural flow.

thanks
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