By Thomas Schmeling, Managing Director, CryptoStruct GmbH.
With cryptocurrency daily volumes regularly topping $200 billion, trading strategies that exploit the sector’s volatility are increasingly attractive. Combine that with the imminent reduction in regulatory headwinds, and it’s not surprising that professional proprietary trading firms have begun taking crypto seriously.
But gearing up to access various crypto exchanges and the plethora of crypto currencies requires a different breed of trading technology. One that’s unlike its traditional or ‘TradFi’ cousin in many ways.
Forget what you ever learned about connecting to exchanges
The world of high frequency trading is predicated on finding cutting-edge solutions to hard problems. With many strategies dependent on the fastest of data and most highly optimised trading connectivity, this ‘Formula One’ community is focused on exploiting the tiniest window to gain micro-second advantage.
Whilst similar trading strategies can be applied to the crypto markets, the underlying technologies are fundamentally different. Navigation of these 24/7, natively cloud-based venues requires a ground-up re-design of the institutional trading infrastructure.
Let’s start with market data. Making sense of where and how to trade requires consistent, high-performance data feeds and common symbology. However, this rapidly evolving marketplace lacks standards. Data structures are less formal, requiring aggregation and sub-millisecond normalisation to enable algorithms to function correctly.
Unlike the highly regulated TradFi world with equal access to the matching engines, crypto feeds are vastly inconsistent in performance as well, with potentially seconds of difference in latency between feeds from the same venue. Navigating this ‘feed arbitrage’ requires a completely new approach to data collection and delivery.
Trading connectivity and physical server deployment is vastly different too. Crypto is mostly cloud-native. This presents the flexibility to scale up and down to follow liquidity between venues, so the server technology must be portable and scaleable, whilst able to facilitate 24/7 trading, meaning no downtime for batch runs or scheduled backups.
Turning to governance and change-management – non-standard upgrade cycles among the crypto venues, as well fewer regulatory requirements around robustness, redundancy and recoverability, mean architecting and maintaining institutional-grade systems is harder than in the traditional world. Furthermore, new crypto exchanges are sprouting up and changing the crypto landscape significantly. Keeping track of these developments and maintaining connectivity and API adaptions is certainly challenging.
Add to this the pace of change – liquidity shifts in minutes, requiring flexible systems to cope with the dynamic environment quickly and efficiently.
So, what does the gold-standard crypto platform for professional traders look like?
Providers in this space must offer multi-region, cloud infrastructures that can be ‘spun up’ in minutes. For our CryptoStruct customers a typical set-up might be one server in Tokyo for Binance, plus another in North Virginia for Coinbase, in ‘virtual colocation’. For those professionals that are serious about performance, leased lines between ‘cloud zones’ should be deployed for performant market data and fastest trading latency. Indeed, multiple (sometimes hundreds) of market data channels are required to optimise for feed arbitrage. Here, a managed data service for normalised market and reference data is most useful, enabling consistent, low-latency data delivery across the globe. On the plus-side, virtual environments are quick to deploy and end users don’t have to be an IT administrator to bring up a new instance. Cloud go-live is fast and simple.
Most operators in this space create their own symbology. Trading engines and algorithms need to know where instruments are fungible between venues, so providers that map instruments to multiple venues and build a virtual order book enable strategies to be deployed easily across them.
Trading adapters that unify order entry across all markets are key. Some exchanges offer multiple ways to connect (e.g. FIX or REST-API) and not all of them are equally fast. Deploying a strategy server that exposes common parameters to the user/quant means traders can build models easily using an event-based SDK with standard fields. New trading algorithms can be deployed within hours on multiple exchanges in this new world.
For institutions, a global view of risk & position management across the multiple virtual environments is still essential. At exchange level the ability to distribute risk, sometimes using multiple sub accounts, enables the most efficient margin balancing; ideally all fully automated.
Given the lack of commoditised historic data in this sector, a provider who offers full-depth tick-by-tick history as part of an integrated back testing service is desirable.
Riding the highs and lows
CryptoStruct is a new breed of crypto technology provider – empowering institutional crypto trading to move to another level. Scalable, programmable AWS environments, giving a working platform at low cost, can be deployed in minutes, with capacity for hundreds of millions of orders per day, and hundreds of strategy instances per server.
Fully optimised for 24/7 uptime, and capable of handling the huge amount of market data, we’re crypto-ready for functionality like wallets, sub-accounts, fundings, liquidations, broken lot sizes, inverse contracts and quantos.
Given the right technological base there’s no reason for institutional prop traders to hold back. Platforms that enable easy-start and easy-scale, broad coverage, robust, reliable and safe access to crypto markets are available now and here to stay.
In time to board the crypto rollercoaster.
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