ramseshk
b59dcc3629
Set up the directory structure and wrote placeholder logic for: - Order Book Imbalance: trades on L2 bid/ask skew - Iceberg/TWAP detection: follows whale accumulation patterns - Funding rate arbitrage: delta-neutral carry on perp funding - Pairs trading: BTC/ETH spread mean reversion - Avellaneda-Stoikov market making: optimal bid/ask quoting Also added shared risk manager, portfolio tracker, and a plain-language strategy walkthrough in docs/.
102 lines
2.9 KiB
Markdown
102 lines
2.9 KiB
Markdown
# FTDT Quant Lab - Strategy Walkthrough
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A plain-language explanation of each strategy: what it does,
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why it works (or might work), and what to watch out for.
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---
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## 1. Order Book Imbalance
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**What it does:**
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Watches the order book in real time. If there are way more
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buy orders than sell orders stacked up, it buys. If the
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opposite, it sells.
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**Why it might work:**
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When one side of the book is heavy, market orders eat into
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that side and push the price toward the thinner side. You're
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basically front-running that move.
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**Risks:**
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- Fake walls — someone puts up a huge order to bait you,
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then cancels it.
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- Low signal quality in ranging markets.
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---
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## 2. Iceberg / TWAP Detection
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**What it does:**
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Looks for big traders slicing their orders into small pieces.
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When it spots the pattern, it trades in the same direction.
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**Why it might work:**
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If someone is accumulating a lot of BTC slowly, they probably
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know something (or at least their buying pressure will move
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the price). You're piggybacking their flow.
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**Risks:**
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- False positives — random noise looks like a pattern.
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- The whale could be wrong. You're copying someone who
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might lose money.
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---
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## 3. Funding Rate Arbitrage
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**What it does:**
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Hyperliquid charges a funding rate every 8 hours. When it's
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positive, people who are long pay people who are short.
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This strategy goes long spot (no funding) and short perp
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(collects funding), staying delta-neutral the whole time.
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**Why it works:**
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It doesn't bet on direction — it bets on the funding
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mechanism itself. You earn the rate regardless of whether
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BTC goes up or down.
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**Risks:**
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- Funding rate can flip (you'd have to close and reopen
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the other way).
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- Execution risk — if one leg fails, you're no longer
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delta-neutral.
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---
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## 4. Pairs Trading (BTC/ETH)
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**What it does:**
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Tracks the price ratio between BTC and ETH. When the spread
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gets unusually wide, it bets it will narrow. Short the
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expensive one, long the cheap one.
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**Why it might work:**
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BTC and ETH tend to move together over time. Big moves apart
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from each other often snap back. This trades the snap-back.
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**Risks:**
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- Regime change — if something fundamentally changes the
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BTC/ETH relationship, the spread might never revert.
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- Needs enough data to calculate a reliable mean.
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---
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## 5. Avellaneda-Stoikov Market Making
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**What it does:**
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Places buy and sell orders at optimal prices around the
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midpoint, adjusting based on how much inventory you're
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holding and how much time is left in your trading session.
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**Why it works:**
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Market makers profit from the spread (buy low, sell high).
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The A-S model tells you exactly where to place your bid
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and ask to balance profit vs risk.
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**Risks:**
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- Adverse selection — someone who knows more than you
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picks off your quotes.
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- Requires low latency and accurate volatility estimates.
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- More of a "keep the machine running" strategy than
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a get-rich-quick one. The edge is small per trade.
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