Pure Market Making

Single exchange market making strategy for providing liquidity

Overview

Pure Market Making is the most fundamental market making strategy in Hummingbot. It places limit buy and sell orders on a single exchange to provide liquidity and earn spreads.

How It Works

The strategy continuously places bid and ask orders around the mid-price:

1. Calculates the mid-price from the order book
2. Places a buy order below the mid-price (bid_spread)
3. Places a sell order above the mid-price (ask_spread)
4. Refreshes orders periodically based on configuration
5. Captures the spread when both sides fill

# From source: hummingbot/strategy/pure_market_making/
bid_price = mid_price * (1 - bid_spread)
ask_price = mid_price * (1 + ask_spread)

When to Use

Best For

• Stable markets with consistent volume
• Exchanges with rebates for makers
• Trading pairs with tight spreads
• Accumulating inventory over time

Avoid When

• Markets are highly volatile
• Low liquidity pairs with wide spreads
• Exchange has high maker fees
• Dealing with low-float tokens

Core Configuration Parameters

Required Parameters

exchange · string · required

The spot exchange connector to use (e.g., binance, coinbase_pro)

market · string · required

Trading pair in BASE-QUOTE format (e.g., BTC-USDT)

bid_spread · decimal · required

Distance from mid-price to place bid orders. Enter 1 for 1%.

Example: 0.5 places bids 0.5% below mid-price

ask_spread · decimal · required

Distance from mid-price to place ask orders. Enter 1 for 1%.

Example: 0.5 places asks 0.5% above mid-price

order_amount · decimal · required

Amount of base asset per order

Example: 0.1 for 0.1 BTC per order

order_refresh_time · float · required

Frequency in seconds to cancel and replace orders

Default: No default, must be specified

Order Management

order_levels · int · default: "1"

Number of orders to place on each side

Example: 3 places 3 buy and 3 sell orders

order_level_spread · decimal · default: "1.0"

Percentage increment for subsequent order levels. Required if order_levels > 1.

Example: With bid_spread=0.5 and order_level_spread=0.3, orders are placed at 0.5%, 0.8%, 1.1%

order_level_amount · decimal · default: "0"

Amount to increase/decrease per level. Use negative values to decrease.

Example: 0.05 increases each level by 0.05 base asset

order_refresh_tolerance_pct · decimal · default: "0"

Percent price change required to refresh orders. Prevents excessive order cancellations.

Range: -10% to 10%

Inventory Management

inventory_skew_enabled · bool · default: "false"

Adjust order sizes based on inventory imbalance

inventory_target_base_pct · decimal · default: "50"

Target base asset percentage when inventory skew is enabled. Enter 50 for 50%.

Example: 60 targets 60% base asset, 40% quote asset

inventory_range_multiplier · decimal · default: "1"

Tolerance range around inventory target as a multiple of order size

Price Sources

price_source · string · default: "current_market"

Price reference for order placement

Options:

• current_market: Use current exchange mid-price
• external_market: Use another exchange’s price
• custom_api: Use custom API endpoint

price_type · string · default: "mid_price"

Type of price to use as reference

Options:

• mid_price: Average of best bid and ask
• last_price: Last traded price
• last_own_trade_price: Your last trade price
• best_bid: Top bid price
• best_ask: Top ask price
• inventory_cost: Your inventory cost basis

price_source_exchange · string

External exchange for price reference (when price_source=external_market)

price_source_market · string

Trading pair on external exchange

Advanced Features

hanging_orders_enabled · bool · default: "false"

Keep orders active when one side fills

hanging_orders_cancel_pct · decimal · default: "10"

Spread percentage at which hanging orders are cancelled. Enter 1 for 1%.

order_optimization_enabled · bool · default: "false"

Jump to top of order book (best bid/ask jumping)

ping_pong_enabled · bool · default: "false"

Alternate between buy and sell orders after fills

price_ceiling · decimal · default: "-1"

Price above which only sell orders are placed. Use -1 to disable.

price_floor · decimal · default: "-1"

Price below which only buy orders are placed. Use -1 to disable.

add_transaction_costs · bool · default: "false"

Automatically add exchange fees to order prices

Example Configuration

Basic Setup

strategy: pure_market_making
exchange: binance
market: ETH-USDT
bid_spread: 0.1
ask_spread: 0.1
order_amount: 0.05
order_refresh_time: 30.0

This configuration:

• Trades ETH-USDT on Binance
• Places orders 0.1% away from mid-price
• Uses 0.05 ETH per order
• Refreshes orders every 30 seconds

Multi-Level Orders

strategy: pure_market_making
exchange: coinbase_pro
market: BTC-USD
bid_spread: 0.05
ask_spread: 0.05
order_amount: 0.01
order_levels: 5
order_level_spread: 0.05
order_level_amount: 0.005
order_refresh_time: 60.0

This places 5 orders on each side:

• Level 1: 0.05% spread, 0.01 BTC
• Level 2: 0.10% spread, 0.015 BTC
• Level 3: 0.15% spread, 0.02 BTC
• Level 4: 0.20% spread, 0.025 BTC
• Level 5: 0.25% spread, 0.03 BTC

With Inventory Management

strategy: pure_market_making
exchange: kraken
market: SOL-USD
bid_spread: 0.2
ask_spread: 0.2
order_amount: 10
order_refresh_time: 45.0
inventory_skew_enabled: true
inventory_target_base_pct: 50
inventory_range_multiplier: 1.5

This maintains a 50/50 base/quote balance and adjusts order sizes when inventory deviates.

Tips for Success

Start with Conservative Spreads

Begin with spreads of 0.3-0.5% to ensure fills while learning the strategy. Gradually tighten spreads as you gain experience.

Monitor Inventory Balance

Enable inventory skew to prevent accumulating too much of one asset. This is especially important in trending markets.

Use Order Refresh Tolerance

Set order_refresh_tolerance_pct to 0.1-0.2% to reduce order cancellations during minor price fluctuations, saving on fees.

Consider Multi-Level Orders

Using 3-5 order levels provides better capital efficiency and catches both small and large price movements.

Risk Management

Key Risks:

• Inventory Risk: Market moves against your position
• Fee Risk: Frequent order updates consume fee rebates
• Competition: Other bots may have tighter spreads
• Volatility: Sudden price changes can cause losses

Mitigation Strategies:

• Set price_ceiling and price_floor to limit exposure
• Use filled_order_delay to pause after fills during volatile periods
• Enable add_transaction_costs to ensure profitable spreads
• Start with small order_amount values

Source Code Reference

Configuration: /source/hummingbot/strategy/pure_market_making/pure_market_making_config_map.py:120

Strategy Implementation: /source/hummingbot/strategy/pure_market_making/

Related Strategies

• Avellaneda Market Making: Advanced market making with dynamic spreads
• Perpetual Market Making: Market making on derivatives