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What other risk does a market maker face?

KB: 0051

There are many moving parts when operating a market making bot that all have to work together in order to properly function:

  • Hummingbot code
  • Exchange APIs
  • Ethereum blockchain and node
  • Network connectivity
  • Hummingbot host computer

A fault in any component may result in bot errors, ranging from minor and inconsequential to major.

It is essential for any market making bot to regularly refresh its bid and ask offers on the market in order to adjust to changing market conditions. If a market making bot is disconnected from the exchange for an extended period of time, then the bid/ask offers it previously made would be left on the market and subject to price fluctuations in the market. The orders may be filled at a loss as market prices move while the market maker is offline. It is very important for any market maker to make sure that the technical infrastructure is secure and reliable.

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