Also, the market data from the different exchanges must be normalized to make profitable trading decisions. Data normalization is no small feat and can be undone by any one exchange changing its data format.
From a global execution perspective: The challenges are immense. Trades requiring simultaneous execution on multiple platforms can be expensive because the capital requirements are so high.
As an example, let’s assume a trader has $1 million in capital. To buy BTC on one exchange at $52,000 and sell on another at $53,000, a trader has two choices:
First, the trader can buy on one exchange, transfer to another exchange and then sell. However, that process can take anywhere from 10 minutes to an hour. The trader executes with $1 million. However, the trading profits can easily disappear while awaiting the transfer.
Alternatively, the trader can maintain balances on multiple accounts. In this case, the trader would have needed $500,000 in USD on exchange one, and $500,000 in BTC on exchange two to execute the trade.
Same $1million in capital. Same trade. Half the trading profits.
None of these tasks are central to the core strengths of successful traders — trading strategy development and execution. And each is significant:
Onboarding chews up time as well as legal resources
API management is cumbersome. No trader wants to worry about API management.
Normalized pricing data is required and is expensive to manage in-house
There Has To Be A Better Way
It doesn’t take much of a mental leap to imagine a world in which institutional traders can not only gain the capabilities they need but also eliminate the operational and technical headaches currently keeping them on the sidelines. We’ve seen it over and over in ecommerce, and even in job-hunting websites — platforms that scour other sites for jobs and product prices, presenting one consolidated marketplace.
In the cryptocurrency trading world, it would mean bringing together a multitude of order books into one normalized data feed via one set of APIs, with trading via one interface or platform.
For example, below is an illustration showing how three actual order books would appear as one. See the below screenshots from Coinbase Pro, Kucoin, Huobi taken on March 9, 2021 at 11:35 a.m. EST. Notice the increase in liquidity and the decrease in spread. Spreads of $29.21, $25.73 and $6.72 separately, versus $0.01 together.
It looks easy, right?
However, no professional trading platforms exist that provide these critical capabilities.
No single platform:
Provides global price discovery and execution across countries
Delivers the best global price in one local currency
Aggregates global liquidity
Enables direct access to multiple exchanges globally
Provides global trading via a single account
Delivers a single, normalized market data feed
Institutional trading growth, especially on a global scale, won’t begin in earnest until these important requirements are addressed. Then, professional bitcoin traders can finally move from the sidelines to a true, global trading field.
This is a guest post by Haohan Xu . Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
