Technology for Crypto Market Makers

What market makers need from their technology

A market maker earns by posting prices on both sides of a book and managing the inventory that results. That work comes down to five technology jobs.

• Two-sided quoting that reprices as the reference price moves.
• Hedging, so a fill on one venue does not leave an uncovered position.
• Risk limits that stop a bad parameter or a fat-finger order before it reaches an exchange.
• Connectivity to the venues and liquidity providers where quotes and hedges are placed.
• Monitoring, so a human can see what the automation is doing and stop it.

Liquid Mercury, the Chicago-based institutional digital asset infrastructure provider, covers these jobs in Mercury Pro, its execution and order management system, and in Mercury OTC, its electronic OTC platform. If you want the background first, read how crypto market making works and the market making glossary entry.

Market Making algo

The Market Making algo is designed to provide two-sided markets on a given exchange while leaning on liquidity from another exchange. You choose a source exchange, where prices are consumed, and a destination exchange, where markets are made.

The algo maps like contracts across the two venues and lets you adjust the mapping by hand. It places orders, one or two sided, on the destination market using source prices and the risk parameters you set. As the source price changes, it cancels and resubmits orders on the destination in real time.

When an order is executed on the destination exchange, the algo cancels the other resting orders on that contract at the destination and hedges the execution on the source exchange. That is how it limits the trader's risk and position size.

The algo has a dedicated dashboard inside Mercury Pro, so you can see what it is doing and keep control over executions.

Parameters

You configure the source and destination venues, the price mark-up applied to source prices, and the risk parameters that bound the quotes. Mark-up is the lever that sets how much edge you ask for relative to the source price.

Hedge timing and method are configurable

When to hedge and how to hedge are set by the trader. The algo hedges on the source exchange using strategies intended to maximize the trader's edge, and you decide how aggressive that hedge should be.

OTC Posting algo

Many liquidity providers only accept marketable orders. The OTC Posting algo gets around that. It creates synthetic resting orders posted against a pool of liquidity providers, so a trade executes at a predefined price at some point in the future.

You set the order price and size, choose which liquidity providers to include, and let the algo aggregate their prices into a single order book and monitor it. When the order becomes marketable, it is sent to the chosen providers, and one order may be broken into smaller orders depending on market conditions. Execution can use streaming or RFQ workflows.

The algo is primarily used by OTC brokers that white label the Liquid Mercury OTC platform, and Mercury Pro customers can use it as well. See Mercury OTC for the desk side of that workflow.

The rest of the algo suite

Market making rarely runs alone. The suite also includes Sweep, Spreader, TWAP, Chase and Volatility algos, covering spot, perpetuals, futures and options. Two matter most to a market maker.

• Spreader legs into multi-leg orders while holding a target net price, with venues, maximum leg exposure and slippage set by the trader.
• Volatility quotes and executes options against a trader-defined implied volatility, with optional automatic delta hedging in the futures market.

The full list is on the Algo Suite page.

Risk controls for market makers

A quoting engine that cannot be stopped is a liability. Mercury Pro layers three controls. In the EU, algorithmic trading by investment firms is regulated under MiFID II and MiFIR.

Prevent. The Risk Engine checks every new order, open order, position and fill against limits you configure. Limits cover maximum notional per order, maximum quantity per order, maximum open orders, maximum filled plus open notional, and maximum position, scoped to the account, instrument type or individual symbol, across spot, perpetuals, futures and options. If any threshold is breached when sending a new order, the Risk Engine rejects it, and rejection continues until exposure returns inside the limit or the configuration changes.

Pause. The kill switch is a system-level control that lets authorized administrators halt trading across supported exchanges and accounts. When it is activated, all open orders across supported exchanges and accounts are canceled and new submissions are blocked until trading is re-enabled.

Resolve. Auto-Liquidation flattens all open positions for a given exchange account from the Positions window, either aggressively or on a scheduled, TWAP-style basis. Liquidation orders can be configured to bypass the standard pre-trade checks to support an unwind when ordinary limits are restrictive. Execution still depends on venue availability, liquidity and order constraints.

Pre-trade checks sit on top: available balance, available credit, region restrictions, and a hyper-marketability check that rejects a limit order priced through the top of book.

Connectivity

Mercury Pro connects to custodians, OTC liquidity providers and exchanges through FIX, Binary, REST and WebSocket APIs, with Level II and Level III order book depth across connected venues. Order routing is positioned by server location relative to venues, and co-location options are available.

For a deeper look at protocols and venue coverage, see crypto venue connectivity.

Mercury OTC for market makers

Mercury OTC is built for OTC brokers, market makers and liquidity providers. For market makers, it is a way to provide two-sided liquidity with built-in pre-trade and post-trade risk management, real-time position monitoring and automated hedging, so you can price competitively while keeping control of the book.

It supports RFQ, request for stream and streaming quotes around the clock, single-dealer, multi-dealer or hybrid pricing, and spot, futures, perpetuals, options and multi-leg structures. The whole platform can be white labeled.