High-frequency strategies, which typically employs algorithmic systems, can be applied to bitcoin trading. This can involve looking at price gaps, short-term arbitrage opportunities, and other market factors to make profits off volatile price action.
According to Assembly software and cryptocurrency engineer Andrew Barisser, bitcoin trading using high-frequency strategies has an incredibly open system that can easily be used by developers. Exchanges usually have open APIs that can allow anyone to trade, without requiring premium access or associated costs.
Bitcoin Trading Systems
Barriser implements his bitcoin trading algorithm on the “shark-infested waters” of the Coinbase exchange, which is already filled with other trading robots. He compared high-frequency strategies to a little suckerfish that’s cleaning up after a big fish, profiting from small market inefficiencies and slippages.
He declined to share the details of his actual trading system though, fearing that this could make it less efficient. After all, competitors could pounce on his approach and develop better algorithms that could outlast his.
From a general perspective though, his bitcoin trading strategy involves creating a sophisticated market-maker that provides liquidity to the Coinbase exchange. “It can place limit orders, like little traps, at varying depths on the buy and sell sides. It varies the exact way it does this based on recent market conditions. If a large trade is then suddenly executed, it may overwhelm the availability of offers at the best price. Such a large offer may then trigger one of my offers, lying in wait, at a more advantageous price,” he explained.
Other bitcoin trading high-frequency strategies focus on market volumes or try to rectify spread differences between other exchanges. Some may involve tracking other bots and replicating or reversing their positions. At the end of the day, these trading systems generally rely on the speed at which orders are executed.