Spread Capture, a fundamental objective in crypto market making and institutional trading, refers to the strategic process of profiting from the bid-ask spread—the differential between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask) for a digital asset. This mechanism constitutes a primary revenue stream for liquidity providers and market makers who facilitate continuous transactions in financial markets.
Mechanism
Operationally, spread capture involves continuously posting both bid and ask prices on an exchange’s order book or through an RFQ system, with the strategic intent to buy at the bid and subsequently sell at the ask. Sophisticated algorithms dynamically adjust these quotes in real-time, considering factors such as market depth, order flow toxicity, implied volatility, and inventory risk. The matching engine of the trading venue facilitates the execution, allowing the market maker to realize profit from this differential.
Quantitative metrics illuminate execution costs, market impact, and risk-adjusted returns, driving superior capital deployment for algorithmic block trades.
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