In case you didn't know I am a programmer by trade and I often like to stretch both my programming skills and knowledge by doing private side projects. During the weekend I was searching the web for ideas and inspiration for my next project, and I hit on the concept of high frequency trading. In short programmers were creating semi autonomous bots that would trade the financial markets with some predefined rules and assumptions set in a model.
Market Making
When most people thinking about trading financial markets they often think of the strategy of buy/sell known as going long or sell/buy or going short. Essentially your trading strategy is based on finding the bottom of the market to buy in the hope that the price moves higher, or finding the top of the market in the hope that the price moves lower.
The market maker actors in financial markets operate differently, they're not too concerned about the direction of the markets because they make money on the difference of the spread. What is the spread? Well you may have noticed that when you have bought foreign currency or crypto coins, there is a difference in price to buy compared to selling, that difference is called the spread. The bigger the spread the more money a market maker earns, and believe it or not spreads grow during periods of high volatility!!!
The Role
The main role of market makers is to provide liquidity, a real world example would be the role a supermarket has in providing you with fresh produce. We can go to the supermarket at any time of the year and purchase fresh fruit and veg, regardless that it may be out of season within your part of the world or not. What the supermarkets are doing is providing liquidity, they maintain the market all through the year by matching you as a buyer to both foreign and domestic farmers or the seller. If they didn't act to provide this market you would not be able to purchase fruit and veg out of the normal growing season in your country.
I believe this is exactly what BitConnect are doing, a lot of people have slammed the service and have labelled it a Ponzi scheme, and I have to admit I have been more than skeptical myself, although I'm still giving it a try you can read my latest update here. What hasn't helped the rep of BitConnect is the generous affiliate scheme that they offer. Any casual observer would probably say it's not possible to generate those types of profits from a mysterious trading bot.
However if you were to look at BitConnect as a market maker within the Bitcoin market I think their strategy actually makes sense, and could prove to be a much safer strategy than the long/short type of trading that many are doing. Do you remember pre fork when people holding bitcoin lost their s**t, because they hadn't factored in the possibility of a free floating currency actually falling in price. Well market makers do not care about the direction of travel because they make money at any price level. Their actual role is to continually offer a buy/sell price as their profit is in the spread. We all know how volatile Bitcoin is so it stands to reason that the spreads being offered by the BitConnect volatility software are lucrative to BitConnect. Which in my opinion is why they can offer to payout on both their daily interest product and affiliate scheme.
This is just my opinion based on my knowledge of financial markets, I would be interested to know what your view is in the comments.
Once again thanks for reading! As always if you think you received some value out of this post, please hit the upvote button, drop comment or follow me. ✌✌