In the fast-paced world of crypto trading, speed and accuracy are paramount. Every millisecond can be the difference between success and failure, especially for traders who rely on narrow spreads and high transaction frequency. For market makers, colocation and sub-accounts have emerged as indispensable tools, not only for reducing order execution times but also for enhancing trading stability, optimizing strategy efficiency, and enabling precise risk management.
Instant Execution and Smarter Strategies: Leveraging Colocation and Sub-Accounts
Colocation involves strategically placing a trader's servers in close proximity to an exchange's servers. This proximity minimizes both physical and network distances, ensuring that orders reach the exchange and are executed with maximum speed. In high-frequency trading (HFT), even a difference of 1–2 milliseconds can significantly impact profitability. Beyond speed, colocation is vital for maintaining strategy stability. For arbitrage strategies between exchanges or market making with tight spreads, instantaneous signal processing is critical. Any execution instability can lead to substantial losses or missed opportunities.
Sub-accounts, which are additional accounts within a main exchange profile, each with its own independent balance and order book, offer several advantages:
- •Segregation of strategies and portfolios.
- •Effective risk limitation for specific trading directions.
- •Safe testing of new strategies without impacting the primary account.
This functionality allows a market maker to simultaneously run arbitrage and order book imbalance strategies, with each operating autonomously and independently of the others.
Quantifying the Impact: How Latency Reduction Boosts Profitability
A recent investigation into reducing latency in spot and futures markets, particularly in highly volatile conditions where precision is non-negotiable, highlighted the significant impact of infrastructure optimization. In high-frequency strategies, even a marginal increase of 5–10 ms can erode profit margins or fundamentally alter the outcome of a transaction. Practical experience has demonstrated that standard API solutions, often perceived as adequate, can falter during peak trading periods, leading to tangible financial losses rather than just data discrepancies.
To identify tools that truly provide a market edge, a comparative analysis of market-making programs offered by leading exchanges was conducted. While specific conditions vary, a clear trend indicates that exchanges are increasingly competing on technical capabilities, offering attractive rebates and flexible commissions as key differentiators for professional traders.
- •Bybit provides trading volume-based discounts: for spot trading, ranging from -0.001% to -0.0075%, and for futures trading, from 0.0028% to -0.0125%. They also feature a dedicated program for connecting market makers with projects requiring liquidity.
- •Gate.io offers fee discounts up to -0.015%, access to their Market Maker Protection (MMP) system, and the potential for interest-free loans up to 400,000 USDT to facilitate strategy scaling. Additionally, they provide 24/7 personalized technical support.
- •Binance offers trading fee discounts, with top participants eligible for up to a 0.005% discount, and the next four receiving up to 0.002%. Furthermore, certain pairs benefit from a 0% maker fee and enhanced API limits.
- •Bitget implements a tiered discount structure for maker fees, varying from -0.005% to -0.015% based on monthly trading volume. They also offer extended limits for sub-accounts and APIs, along with dedicated technical support.
- •The WhiteBIT exchange stood out with its comprehensive offering, including low fees and discounts of up to -0.012% on both spot and margin trading. Crucially for HFT, they provide colocation services, sub-accounts for strategy segregation, high-speed API integration with WebSocket, FIX, and Webhook, supported by 24/7 personalized assistance.
Calculations reveal that accessing colocation can reduce average latency by approximately 15–20 ms. This reduction is not merely a numerical improvement; it translates into a discernible enhancement in the speed of receiving order book data and a greater ability to secure advantageous positions in the execution queue.
Combined with the organizational benefits of sub-accounts—allowing for the isolation of independent algorithms, the distribution of risks across different models, and the testing of new approaches without operational interference—and stable WebSocket, FIX, and Webhook channels, data delay issues are effectively eliminated.
Based on these estimations, the strategic advantages are substantial: a potential increase in strategy profitability by 8–10% over the same period, without an elevated risk profile. This leads to more stable spreads and near-instantaneous execution.
Conclusion: Infrastructure as a Competitive Differentiator
This analysis reinforces a fundamental principle in market making: success is not solely determined by the complexity of a strategy, but by the optimization of the underlying infrastructure to ensure every millisecond contributes to performance. Colocation and sub-accounts are no longer optional enhancements; they are foundational tools that define a trader's competitiveness in today's market.