Quote Life Span refers to the temporal duration during which a quoted price for a cryptocurrency asset or derivative remains active and executable by a counterparty. This period is a critical parameter for market makers and trading systems, as it directly impacts the risk of adverse selection and the ability to maintain a balanced inventory. A shorter span reflects higher market volatility or increased risk exposure.
Mechanism
The determination of a quote’s life span is typically a function of a liquidity provider’s risk parameters, current market volatility, and the speed of market data updates. Automated systems apply a predefined time-to-live (TTL) to each quote, which, upon expiration, automatically cancels the quote if it has not been executed. This mechanism prevents the execution of outdated prices.
Methodology
The methodology involves dynamically adjusting the quote life span based on real-time market conditions. Algorithms monitor metrics such as price velocity, order book depth changes, and recent trade volume to determine an optimal TTL. A shorter TTL may be applied during periods of high volatility to limit risk, while a longer one might be used in stable markets to increase execution probability.
Frequent quote cancellations necessitate robust, low-latency execution systems and discreet RFQ protocols to preserve liquidity and minimize market impact.
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