Synopsis
there are two basic motivations for makers when offering liquidity:
- E-commerce: Involving a 'standard' tier of prices for, often fixed, rung positions (as displayed in the table below). Bid and Offer prices are steadily published for these standard quantities, with individual entries that may be marked indicative (non-tradeable) or tradeable, from tick to tick. This is the traditional model for Bank ESP flows.
- Interest: The tier is a reflection of a Makers exhaust preferences, to trade down positions built up in other flows. In this model the ladder will typically be presenting more liquidity on one side, in an asymmetric fashion, i.e. pricing will be much tighter on the side where trading is preferred. The volume bands can be entirely dynamic - published rung positions, varying from tick to tick. There is a reduced requirement to show indicative prices here, as the intention of the Maker is often to zero-out previously published liquidity. This method makes it perfectly feasible for liquidity to be published on a single side only.
Multi-level Quotes
There are some venues that allow the submission of multi-level quotes to the market (such as the example below).
USD/JPY
| Rate | Quantity in
Millions |
|---|
| 112.50 | 1M |
| 112.49 | 2M |
| 112.48 | 5M |
Whisperer does support the submission of multi-level quotes (also referred to as a ladder/or tiered quotes), imposing no restrictions on what a customer decides to publish using the API.
As a result, MarketFactory does not constrain;
- The number of Stream Categories. However, the number and naming of Stream Categories must be bilaterally agreed between the customer and the venue, as the venues usually have to maintain a static config on their side.
- The number of rungs (and their sizes), published on a given Stream Category and Ladder. This is determined by the customer application and can be static or dynamic.
- The quality/nature of the pricing within a ladder.
- The number of ticks a customer publishes for a given Stream Category and Ladder
However, exactly what customers are able to publish will vary dependant on the venue and the bilateral agreement for the connection between the customer and the ECN. |
To be continued...