In the traditional trading field, automatic market making is a relatively new technology. Automation has replaced human market makers, who are worker bees in trading centers. For decades, hand-made order books have been regarded as the main products of this industry. Then the computer appeared. Due to the benefits brought by technology, the trading model at that time had to be upgraded.
With the introduction of blockchain technologies such as cryptocurrency transactions and smart contracts, the same thing happened again. Digitex futures plan makes full use of this innovative technology to promote the automation of futures trading.
Most novices in the field of cryptographic trading may want to know: what is an automatic market maker? 2) What is their relationship in the field of cryptocurrency trading? To answer these questions, we must take a step back and see how orders work before automatic market making. Stay with me.
Before the era of automation
First, let's break down what an order is. It is a market mechanism (tool) used to list all the buying and selling orders; Displays the quantity and price of assets. At that time, before the full potential of the internet was fully understood, a room full of people had to "manually" complete these orders and match the orders of buyers and sellers. Yes, imagine.
Besides the time wasted in gathering all the data, there are some problems with this method. Just like the decline and delay of price discovery, creating orders at snail's speed has become an inherent acceptance of the system. However, the front page of the newspaper emphasizes the greater price manipulation of market makers such as Nasdaq and NYSE, which does not help the employment security of human market makers.
The early days of automatic market making
I don't remember; It is worth noting that Hilsen's Hilsen Lehman Brothers Company was one of the first financial institutions to use automated market making. The idea is simple, using the technology at that time, reducing the chance of artificial manipulation and bringing liquidity to the market.
Automatic market maker is essentially an algorithm (program); The rule says "If so, then so", that is, if the asset price goes up or down, then take action. Of course, there are some complicated mathematics, but we are not here to learn technology. The world of high-frequency trading was born.
Most traders and companies that have experienced automation transformation will argue that the benefits of automation and its positive reflection on profits are beyond doubt. I remember at that time and even now, whether you win or lose, you have to pay the commission.
Benefits of automation and auto futures trading
Automatic market makers have changed the trading mode. The efficiency gained by using automated procedures has several positive effects on the market and the whole industry:
Based on this technology, a new trading model came into being.
The price drop between two transactions may be less than a penny.
It takes only a few seconds to create an order, and the cost is only a fraction of the cost.
The latency of a transaction call is measured in milliseconds rather than seconds.
The market has formed a high degree of liquidity.
It is helpful to reduce the capacity and quantity of bad actors, such as grabbing seats, manipulating prices, washing dishes, etc.
The company is happy because the price fluctuation has dropped to an acceptable level, which means less decline. Institutional investors have seen a new net profit margin. Even retail investors seem happier because the system seems fairer.
Automatic market makers conform to blockchain technology.
Nearly 30 years after the introduction of algorithms, they have become the standard back-end technology of any traditional trading company.
Blockchain technology has brought another progress in the field of trade. History tells us that once the technology used in this industry is developed, the business model used in this industry must also be developed.
Today's encrypted trading environment operates with business cycles of 7 days, 24 hours and 365 days per week. Like weekends, market closures, business hours, business closure or after-hours trading no longer apply. Cryptographic exchanges and futures exchanges are perfect places for automatic market makers.