5 min

Thalex Market Quality Program

Thalex's Market Quality Program (MQP) enhances market liquidity by rewarding all participants based on the quality of their contributions. It uses a structured scoring system to evaluate and promote efficient trading, making the market more robust.

Thalex X
Published on
Sep 26, 2023

In a constant endeavor to bolster market functionality and enhance user engagement, Thalex has launched its dynamic Market Quality Program (MQP). This initiative aims at enriching the visible liquidity on Thalex, making the trading environment more robust and engaging for all market participants. Below, we delve into the key components of this program, articulating its methodology in simple terms for better comprehension.

Enriching Orderbook Liquidity:
At the heart of the MQP is the orderbook, a real-time, continually updated list of buy and sell orders in the market, where each order shows the price and amount of the asset willing to be bought or sold. The prime goal is to improve the orderbook’s liquidity, which in layman’s terms, means making it easier for buyers and sellers to find each other and agree on a price.

How Does It Work?

  1. Participation Openness:
    The MQP is an open program where anyone contributing liquidity to the platform is considered a participant. The inclusive nature of this program invites all traders, regardless of their trading volume, to contribute and benefit.
  2. Reward Distribution:
    The program launched in March with a  total reward pool of $1 million, with a monthly distribution of $100,000.  Rewards are given out from a cash pool based on the quality of the market liquidity provided, irrespective of the trading volume.

    Rewards are segmented as follows by product:

    Future Rolls$5,000$5,000
  3. Regular Snapshot Analysis:

    Thalex employs a systematic analysis through frequent snapshots of the orderbook to measure the liquidity contribution by each participant. These snapshots are used to calculate and distribute the cash rewards, which are accrued over time.

The MQP plays a pivotal role in promoting superior orderbook quality by directly rewarding limit orders. This unique feature ensures that participants are either filled at the size & price they desire, or they are lucratively compensated while they wait, thus encouraging more limit order placements and enhancing overall market quality. "Get Paid To Wait"

Unpacking Aggregation and Scoring:
The MQP operates through a structured aggregation and scoring system to evaluate and reward liquidity contribution.

Market Quality Scoring:
Every side of the orderbook (buy or sell) is evaluated separately based on the orders up to a defined depth, known as the "Depth Cutoff".

At each price level, orders are scored based on their size, with a discount applied depending on how far the price is from the best price, a process known as “Distance Discounting”.

The multiplication of size and price scores results in a “Top of Book Equivalent Score” (TOBE), which, when compared to the total scores, gives a Market Quality Score (MQS) for each order.

A participant’s overall score in a snapshot is the sum of the scores of their orders.

MQSorder = TOBEscore ÷ ∑ TOBE

Depth Cutoff:
This parameter defines how many contracts deep the scoring goes on either side of the orderbook.
For instance, if the BTC Perpetual has a Depth Cutoff of 50 BTC, and the cumulative size is 42 BTC at level P–1 with 12 BTC at level P, the size at P will be included for 8 BTC, with orders at P included on a pro rata basis (2/3).

Distance Discounting:
Price levels are gauged in Price Distance, depicting the absolute difference with the best price, which is normalized using a “Typical Distance”.
Price scores are then discounted per unit of Normalized Distance by a defined exponent, differing by the product.

Price Distance = | Pbest - Porder |

Normalized Distance = Price Distance ÷ Typical Distance

Daily Performance Reports:
Thalex extends the provision of daily reports on a participant’s performance, available on an opt-in basis, making it easy for traders to track and enhance their contributions. Price scores are discounted per unit of Normalized Distance by an exponent. For instance, perpetuals use 0.5 as the exponent and Typical Distance vary by product. 

Meet Trader Joe, who stumbled upon Thalex’s Market Quality Program (MQP) and saw a way to optimize his rewards while contributing to the market. Here’s a snapshot of Joe’s rewarding journey through MQP:

1: Jumping Into MQP
Upon joining the MQP, Joe begins by placing limit orders on Thalex, instantly contributing to market liquidity. The excitement kicks in during Thalex’s Liquidity Competition, where his orders either get filled or earn him rewards while awaiting execution.

2: Order Placement
Trading Future Rolls, Joe sets limit buy and sell orders, adding depth to the order book and enhancing liquidity. Thalex frequently assesses liquidity contributions through snapshot analyses, where Joe’s orders are evaluated based on size, price levels, and proximity to the market price. Joe realized that quoting Future Rolls can be done by hand due to the inherent stability of these spread books which makes them less volatile. Therefore, Joe simply adjusted his bid/ask prices once or twice per day.

3: Earning His Stripes
By month-end, Joe’s Market Quality Score (MQS) earns him a share of the $100,000 monthly reward pool. Subscribing to daily performance reports, he stays informed about his MQS, aiding him in strategizing for better rewards in the forthcoming months.

4: Algorithmic Adventures
Intrigued by algorithmic trading and the possibility of greater rewards from the MQP pool, Joe dives into developing a quoting algorithm to automate his trading strategies. His goal now is to optimize quotes for better performance in the markets.

5: Rewarding Results
With his quoting algorithm in play, Joe not only profits from successful trades but also garners increased rewards from the MQP. This new trading approach significantly boosts his profitability, making his venture with Thalex more lucrative.

Through this journey, Joe personifies the core of what Thalex offers—a space where traders can execute strategies, actively contribute to a thriving market ecosystem, and benefit handsomely. The Market Quality Program at Thalex empowers traders, making every limit order count towards a more liquid and efficient market.

Find out more about the Market Quality Program here

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