Following the announcement of OKX Fees adjustment and the introduction of market maker program, we received a large amount of community feedback, questions and advises about the recent changes on OKX’s pricing mechanism.
The post will present the core rationale of the refined pricing schedule, and answer/clarify some of the most common questions we have been asked such as “What is Liquidity Index and how you measure my market making performance?” and “Why did you change your pricing schedule? It works fine on me.”
The Cancellation on Negative Maker Fees
We cancelled the previous fees schedule - -0.1% on maker and 0.1% on taker – due to the strong feedback from traders who are running an active scalping and stat-arb strategies which are mostly very sensitive on taker fees. Ironically, we received similar request from current market makers who think the market microstructure was twisted due to low participation on active liquidity seekers. Also, the intrinsic value of the liquidity posted far from the top of the book was not appropriately recognized and rewarded. Yet those liquidity helps to stabilize the market especially during the time of orderbook imbalance and high volatility.
We believe a fair and orderly market should be comprised of a healthy mix of market participants with variety trading strategies. And as an exchange it is our goal to design a sustainable and balanced market structure. Fees is one of our tool.
With the cancellation of negative maker fees, we replaced with a tiered-fee schedule coupled with a market maker program.
Measurement of Market Maker Performance
The rationale of having a liquidity multiplier as a coefficient on computing the liquidity index is to reward the maker orders posted as near as the best bid/offer and thus put lesser weight on the resting market depth posted far from the top of the book. It’s a necessary component on measuring as well as incentivize market maker to provide quality liquidity that eventually resulting a better market structure.
The computation of liquidity multiplier adopts the following principles:
- The multiplier is weighted scoring system on the order size placed on the book – the closer to the top of the book, the higher of the allocated weights.
- The multiplier would ONLY consider the resting orders posted 30% from the current best bid and offer price of the market
- Formulae on liquidity multiplier = Quoted Amount * Last Trade Price * [1- abs(Quoted Price / Last Trade Price -1) * weighted parameter] * User’s Contribution Ratio * BTC Value to Base Currency
- In this case, users’ quoting price would be adjusted by comparing the last trade price with a weighted parameter defined by our system. Hence, more distant from the top of the book, bigger discount applies on quoting price.
- Discounted quoting price would then multiply by quoted amount denominated in base currency. Hence, a big chuck of posted orders far from the BBO might yield similar computed coefficient with those smaller orders where posted near the top of the book. We think it is a relatively fair approach to truly reflect the intrinsic value on stabilize the orderbook in respect to deep liquidity.
- The above outcome would be multiplied by the current contribution ratio, which is computed as a comparison on Users’ aggregated posted orders vs. Total aggregated posted orders in effective range. In that case, if you contribute a bigger liquidity to the order book of the particular token pair, you would have earned a better multiplier and hence enjoying more rebates. This is particular useful if you decide the make market for token which has lesser liquidity.
- Finally, we translate the outcomes in BTC value for the calculation of liquidity index.
- Liquidity Index is a snapshotted value on a fixed-time interval recording your quoted liquidity on the book from 00:00 (UTC +8)
- Each token pairs would earn a unique liquidity index. In that case, if you make market for multiple pairs, you would likely to receive rebate at multiple rate according to the respective liquidity index of each pair. Be noted that there is a minimum value on liquidity index
- Formula: Liquidity Index = Liquidity multiplier / User’s Best Bid-Ask Spread
- User’s Best Bid-Ask Spread is a value of users’ posted bid-ask spread relative to last trade price.
- Sum all liquidity multiplier on a single-side and take the smaller value as the numerator.
- You have to maintain the obligation of being a market maker by providing consistent liquidity to the orderbook over 50% of time in order to be eligible for a rebate on maker fees.
- The algorithm of liquidity multiplier and liquidity index shall be subjected to change over time according to the market situation.
- Market maker rebate is a reimbursement from the maker fee charged of your current eligible fee tiers. Therefore, if you are currently a tier-5 account in which are paying 0.11% as a maker, at the same time you are very active market maker on QTUM/BTC and achieved a Level 5 on liquidity index, you would only need pay 0.055% on all filled maker order on QTUM/BTC.
- Market maker performance report would be available on a daily basis which would illustrate the token pair(s) you had traded, liquidity index derived by your yesterday’s market making activities, as well as the rebated % and amounts.
We aware of our design on fees schedule is far from perfect. We believe fees is a continuous evolvement backed by a thorough study on price discovery process, investor behaviour and mechanics of trading. Our community has been fantastic, receptive and we are incredibly appreciated of the feedback we have received.
As always, we welcome any thoughts you may have. Thanks for your support to OKX.