It’s out with the old and in with the new as trading meets blockchain

May 16, 2018 2:36 pm UTC

There’s a brave new world coming to trading and we have blockchain to thank for it. Step back for a moment and imagine what this new landscape could look like.

Full spectrum control which is what every trader want. Of course we all use exchanges but in doing so take for granted the exchange’s control over almost every aspect of the trading process, from price discovery to making the order in the market. It is so everyday that it is difficult to imagine things any other way.

However, with blockchain technology each trader can truly be treated as an individual with different ways of catering to their varied trading and investment styles. We don’t all trade in the same way. Some have lower risk tolerance than others, some are frequent traders while others may be more occasional; and then there will be those who prefer to trade in the less frequented corners of the crypto markets that are far less liquid compared to those for the top altcoin with market caps in the $1 billion range as opposed to say $50 million.

At the moment it is a one size fits all situation, with all traders subject to the same rules and fees. However, blockchain means it doesn’t have to be like that anymore – each trader’s style can be “captured” as a unique data entity and their behavioural characteristics monitored and analysed so that an exchange can offer a bespoke experience for that individual. Indeed, traders could trade directly with each other in a truly decentralised, that’s to say peer-to-peer system and it’s what one MVP from blockchain platform ThinkConnect currently in operation is showcasing.t

A new world for trading

Let’s break this down for the frequent trader who likes to get down and dirty with the smallest of altcoins, where liquidity is thin but the possible gains (and losses) very high. Additionally out frequent traders like to get the spread as they say in trading lingo, in other words they prefer to set limit orders that reverse the bid-offer prices offered by the exchange and are willing to wait until the price comes to them.
Being a frequent trader, our case study individual is a day trader so has the time and inclination to be attentive to the markets 24/7, when not sleeping. Having said that, our intrepid trader but they still have other stuff to do in their life, so they require some automated assistance. Actually that last bit is redundant to with the help of artificial intelligence that can create trading bots that learn on the job and predict what action to take automatically within the parameters set out by the human trader.

This is exactly the kind of traders who would benefit from the dynamic allocation of trading fees based on, for example, the number of trades, how often those trades are providing liquidity to the network by leaving orders open until certain conditions are met to execute them and how many times orders are cancelled.

If a trader is rated highly on those parameters they could be charged much lower fees than the “average” trader. Given the lower liquidity in the smaller altcoins segment, there might also be a weighting applied that increases the reward to the day trader who, let’s bear in mind, is likely to have perhaps a dozen or so positions open in the market at any one time.
This trader-centric approach could be taken even further, with the main market makers on the exchange bidding to take the orders of those who are most attractive to them.

Partnership points to exciting possibilities

For all that to work seamlessly, reliable infrastructure is a must. The problems that plagued crypto exchanges during the surge in new customers that was seen last year, led to overloaded servers, downtime, orders not going through, with customers shutout of the market at critical times. That can leave a very sour taste in the mouth and in a highly competitive sector such as crypto exchanges, getting the infrastructure right is a competitive advantage.

Here again, blockchain has a crucial role to play where decentralized cloud systems are one way I which central points of failure can be avoided and speed and reliable architectures maintained.

We are therefore likely to hear a lot more about distributed cloud storage and computing platform solutions, preferably in a combination of public and private blockchains that can also cope with bringing off-chain code on to blockchain, thereby safeguarding the speed gains essential for maintaining a high-frequency trading environment.

As it happens this is the solution that Silicon Valley startup 0Chain is bringing to the blockchain-based multi-asset trading network ThinkCoin, being built by TradeConnect. 0Chain has a mechanism in its architecture that responds to increases in trading volume by self-forking.

The partnership between 0Chain and ThinkCoin is a practical example of the sort of collaboration that can lead to cutting edge trading solutions coming into play very soon. ThinkMarkets Group is the parent company of ThinkConnect and ThinkCoin is the native token that will power its blockchain and allow platform users to trade mainstream assets such as CFDs and forex directly with crypto, with the vision of tailored prices for individual traders at its centre.
ThinkCoin’s ICO presale is currently in Phase 2 and has already breached the soft cap set at $5 million, with a raise of $ $ 5,373,527.94, as at 11am UTC. The pre-ICO ends on the 18 June, with the public sale running from 25 June to 9 July.