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Being a market maker isn’t for the faint of heart. Every quote you place is at risk of being picked off if you aren’t careful. In this article, I cover the concept of adverse selection, as well as how markouts can be used to measure it.
The core of many derivatives trading strategies is executing on multiple instruments at the same time. With any multi-leg strategy comes the risk of one (or more) of the legs going wrong. In this article, We will cover the concept of ’leg risk’, what it is, and how it can be mitgated…
Crypto traders are always looking for a reliable source of yield. In this article, we cover one of the classic derivatives trades: the basis trade. This trade combines spot and derivatives to generate a fixed or variable yield, with no prisk risk. Read on to find out more…
Spend long enough looking at an order book, and you will notice that it has a life of its own. In this article I will cover how order books are commonly visualised, and how different visualisation methods can show interesting patterns on different markets.
When trading with derivatives, the allocation of margin plays a key part in both risk management and improving returns. In this article we will discuss how margin requirements are calculated, and how portfolio margin can be used by advanced traders to reduce margin requirements, and improve capital efficiency.
Trading out large orders can cause significant market impact if not done carefully. In this article we will cover how consolidated order books can be used to assess liquidity depth of the overall market, and how systems know as “Smart Order Routers” allow dynamic routing of orders so as to trade out large quantities of assets without adverse effects.
Traders and other finance professionals have always had to contend with the risk that the information they are acting on is stale. In the world of DeFi, so called flash loans have given participants the ability to not only make multi-leg trades atomic, but also access to near infinite leverage. In this article we will cover how these special loans work, and also some legitimate (and some less…
In a previous life, I used to frequently attend hackathons. These events are roughly described as a team based competition to create a product/solution to some problem in a limited amount of time. In this article, I outline my thoughts on how to optimise for winning, and some things to avoid.
Automated Market Makers (AMM’s) provide a simple mechanism for users of DeFi platforms to trade assets and provide liquidity. In this article, I will cover how these mechanisms work, the economics that back them, and some of the subtleties of their operation.
Anyone who has worked with software systems will be able to testify to the curse that complexity can bring to a project. Indeed, one of the main touted goals of software development is the management of said complexity, and trying to avoid the spiral into unmaintainability that it can bring about…
Sudden and large price moves are a common feature of crypto markets, but have you ever wondered how they occur? In this article, I will break down these wicks, and go into how the phenomenon of “stop cascades” can lead to their creation.
High leverage derivatives trading comes with inherent risks; not only for traders, but for the exchange as well. In this article I will cover what these risks are, and what strategies crypto exchanges employ to maintain their solvency.
2x, 20x, 100x? Leverage has been the continuous backdrop to the crypto derivatives story, and capable of amplifying profits and cratering positions with losses. In this article I will cover the mechanics of margin and leverage, as well as how exchanges manage the inherent risks of providing these features.
Crypto derivatives have been part of the crypto ecosystem since around 2012 and continue to be popular with speculators, hedgers, and those with a love of leverage. In this article I will cover the history of these products, similarities and differences to their traditional counterparts, and give a breakdown of how these financial products actually work.
Position management and profit and loss calculation may seem straightforward, but it is more tricky than it seems. In this article, I want to go through what happens after those trades occur. Primarily, how we keep track not only of what we’ve traded, but how much profit we’ve earned or losses we’ve accrued by doing it.
Limit Order Books are a key component in trading, and important to understand if you want a full picture of how electronic markets work. In this article I want to go into the concept of Limit Order Books and their operation. Starting from the absolute basics, and later going into some of the more advanced features. In addition, I will try to define relevant terminology and shorthand where…