In addition to charging no or funding fees, Newton also offers some of the best crypto prices in Canada. How the $#% is that even possible?
Check out our or download Newton on the .
Don’t reinvent the wheel
When you peek under the hood of most crypto platforms, one thing becomes painfully obvious: they’re not very good.
The concept of originally emerged from the computer science world as a fascinating blend of applied cryptographic techniques. Most early crypto enthusiasts didn’t come from Wall Street, and had little familiarity with the way traditional electronic systems worked. Rather than using systems that were battle-tested, many companies opted to write their own order systems using a mix of technologies (like NodeJS, for example) that are not typically used for high-volume applications.
Traditional systems are optimized, not for milliseconds, but for micro and even nano-seconds.
Wall Street firms have poured an inordinate amount of time and energy into developing rock-solid systems for everything from potatoes to complex derivatives. They’ve standardized on a protocol, called FIX (Financial Information eXchange, a truly imaginative name), and built blazingly fast systems around it using Java, C++, and C. They’ve optimized not for milliseconds, as is typical on the web, but for micro and even nano-seconds.
But what, exactly, is FIX?
Here’s what a raw FIX message might look like (taken from the ) for placing a market order to buy 100 shares of AXU:
8=FIX.4.2|9=137|35=D|34=47|49=LEH_LZJ02|52=20100303–15:38:27|56=CCGA 115=LZJ|11=NF 0045/03032010|54=1|38=100|55=AXU| 40=1| 59=0| 1=ABC123ZYX| 21=1|207=A|47=A|10=122|
In contrast, a typical JSON format for a web API might look something like this:
FIX is designed to pack a standardized set of information into as small a format as possible. For example, the fix “tag” for specifying the symbol AXU is just an integer: 55. Both parties have a copy of the schema that defines how that integer is interpreted, meaning there’s no need to pass extraneous schema information along with the message itself.
FIX is also a protocol, since sequencing matters a lot when it comes to . Each message comes with a sequence number (47 in this case, where 34 is the sequence “tag”), which is carefully tracked by both the client and the server as messages fly back and forth over a connection. This is unlike web APIs which are meant to be stateless by design.
There’s nothing inherently special about FIX itself — in fact, the protocol is quite old — but setting an industry-wide standard has allowed developers to build hyper-optimized systems that scale to crazy volumes. Order execution systems built around FIX can handle 100s of thousands or even millions of FIX messages per second on a single machine.
Why speed matters
If you’re a , like Newton, you set a price you’re willing to buy and a price at which you’re willing to sell every asset, and the difference between two prices is called the . Market makers earn their profit on the spread (as well as some other techniques which we’ll discuss shortly).
The slower your system is, the larger your spread needs to be.
prices are very volatile and can easily shoot up or down by several percentage points in a matter of seconds. The slower your system is, the larger your spread needs to be to account for the risk that market prices will shoot up or down after you’ve given a price to your . The higher the spread, the more expensive it is for your customers to trade with you.
When you see a price on Newton, that price is good for up to 3BTC (which is represented in our internal ), with further blocks available at increasing order sizes (usually 5BTC and 8BTC, or their ETH/LTC equivalent) with slightly wider spreads.
We poll 20+ external venues, as well as our own internal OTC desk, check those prices against FX rates, place hedges where necessary, and use hyper-optimized proprietary market-making algorithms written in to distill this down into a price we offer to our . These price updates stream in hundreds or even thousands of times per second, allowing us to offer a very narrow spread between the buy and the sell price.
We can only do this because every piece of the chain is built with speed in mind. Slower speed = wider spreads, which is why most brokerages have spreads 2–3x wider than what Newton offers. Doing this with anything other than a battle-hardened order system would take years of unnecessary effort.
A crash course in arbitrage
One surprising result of this market-making wizardry is that we can sometimes make money when our spread is close to zero. This is because we are continuously looking for opportunities — whether they are between USD/crypto prices on multiple global exchanges, or differences between those prices and the current CAD/USD exchange rate, or more complex forms of arbitrage that take advantage of futures. These opportunities rarely last for more than a fraction of a second.
But why is arbitrage good for ? Skillfully done, arbitrage allows us to keep our spreads even tighter than they might otherwise be given prevailing market conditions. We set a fixed profit target and, if there are arbitrage opportunities, can often pass them on to by narrowing our spread even further while still hitting our target.
What the future holds
Our order system currently supports a range of order types commonly seen on stock exchanges (e.g. limit orders, stop orders, etc.), and we’re in the process of opening up these order types to Newton users to allow them to engage in more advanced strategies.
In the near future we’ll be opening up an advanced API so users can write their own blazingly fast algorithms in their language of choice. We may even offer a few sample bots built by our in-house algorithmic traders. With no fees and super-tight spreads, we hope users can cook up strategies that simply wouldn’t be profitable anywhere else.
What other advanced features would you like to see? Head over to the and let us know!
Published at Wed, 20 Feb 2019 16:59:03 +0000
