Whether a market is worth making is arithmetic
Before strategy, before parameters, before anything: compare what one round trip costs against what the book pays you. Most markets fail that test, and no amount of tuning rescues them.
The test that comes before everything
Take the fee for a maker fill and the fee for a taker fill on your venue, add them for one full cycle in and out, and express the result in basis points of notional. That is your floor. Now measure the market's typical spread over a day, not from a single snapshot. If the spread does not clear the floor with room to spare, the market is not makeable, and no parameter set will change that.
We learned this by failing it. On one book we ran for weeks, the measured spread was 0.07 basis points against a round-trip cost of 2.50. Eighteen of the twenty-six markets on the same venue were better. We had been trading the worst one.
- Round-trip cost is the floor; the spread has to clear it with margin.
- Measure the spread over a day. One snapshot cannot tell two markets apart.
- If the arithmetic fails, change market before you change parameters.
The tick, and why the same move has opposite verdicts
A maker who wants priority in the queue can improve the best price by one tick. That buys the front of the queue, and it costs exactly one tick of edge. Whether that is a bargain depends entirely on what a tick is worth in basis points on your market.
On a gold perp trading near $4,450 with a one-cent tick, one basis point is 46 ticks, so a single tick costs about 0.02 basis points. Priority is nearly free. On the silver book alongside it, the same one-tick improvement is worth 1.47 basis points: sixty-eight times more, and enough to hand back a large part of the spread.
Same exchange, same code, same move, opposite verdict. This is why a preset that is correct on one market can be quietly wrong on the market next to it, and why our own engine carries a symbol guard that disables tick improvement where the arithmetic says no.
- Convert the tick to basis points before deciding anything about queue priority.
- A tick worth 0.02 bp is free; a tick worth 1.47 bp is most of your spread.
- Presets are market-specific whether or not they admit it.
| Market | Price level | Tick | One tick in bp | Verdict on stepping inside |
|---|---|---|---|---|
| Gold perp | ~$4,450 | $0.01 | 0.02 | Nearly free: take the queue |
| Silver perp | lower, same tick | $0.01 | 1.47 | Costs most of the spread: do not |
Rebates, tiers and what they are worth
Maker rebates and volume tiers are real money, but they are the smaller half of the picture. A rebate that improves your cost by a fraction of a basis point does not rescue a market where adverse selection costs several. Work out the arithmetic first, then let the fee tier decide between markets that already pass it.
One measurement worth having: how much of your volume is maker. Ours is 99.8 to 99.9 per cent, and that is what makes the rebate side of the schedule the relevant one. A book running at 82 per cent maker is paying taker fees on nearly a fifth of its turnover, which usually swamps any tier benefit.
- Measure your real maker share; the fee schedule only applies as much as that share allows.
- A rebate improves a viable market. It does not make an unviable one viable.
- Tiers matter most when comparing markets that already clear the floor.
Questions
What is the difference between maker and taker fees?
A maker adds liquidity by leaving a resting order in the book and usually pays a lower fee or receives a rebate. A taker removes liquidity by crossing the spread and pays more. A market-making strategy lives on being the maker on nearly every fill.
How do I know if a market is worth making?
Add the maker and taker fees for one full round trip, express the total in basis points, and compare it against the market's typical spread measured over a full day. If the spread does not clear that floor with margin, the market is not makeable.
Is a maker rebate enough to make market making profitable?
Rarely on its own. A rebate is worth a fraction of a basis point, while adverse selection on an unsuitable market can cost several. The rebate improves an already viable book; it does not rescue an unviable one.
Why does one tick matter so much?
Because a tick is a fixed price increment, and its value in basis points depends on the price level. On a gold perp near $4,450 with a one-cent tick, a tick is about 0.02 basis points. On a lower-priced instrument with the same tick, it can be 1.47: the same move, seventy times the cost.