# Spreader (MM\*)

The Spreader algo market makes and trades one market based on another market. This can be used for a variety of different strategies, including cross-exchange arbitrage, futures vs spot basis trading, and relative value trading. Spreader will also send orders in the hedge market, and thus is able to lay off risk or complete the legs of an arbitrage trade. 

<figure><img src="/files/4lVsqCvaouEjuH9Q9fiP" alt=""><figcaption><p>Pricing the AAVE/USD market on Coinbase using the quotes from AAVE/USDT on Binance</p></figcaption></figure>

<figure><img src="/files/kWJSOaVWnqlSSBuZiixA" alt=""><figcaption><p>Trading quarterly Bitcoin future on Deribit based on spot BTC/USDT market on Binance, using a computed premium (future basis)  </p></figcaption></figure>

<table><thead><tr><th width="213">Parameter</th><th>Description</th></tr></thead><tbody><tr><td>Market</td><td>Symbol &#x26; price currency &#x26; exchange of the primary market</td></tr><tr><td>Hedge Market</td><td>Symbol &#x26; price currency &#x26; exchange of the hedge market. The Hedge Market is the source of the reference price as well where hedging orders are sent</td></tr><tr><td>Conversion Ratio &#x26; Premium</td><td>The factors to relate the Market to the Hedge Market, using the formula: <br><code>Market Price = Hedge Market Price * Conversion Ratio + Premium</code><br>The Conversion Ratio also determines the quantity of the Hedge Market order sent for each fill in Market</td></tr><tr><td>Buy/Sell Quantity</td><td>Size of each order to send</td></tr><tr><td>Minimum/Maximum Position</td><td>Position bounds that the algo will not exceed. Will only send one sided orders the cumulative position reaches the minimum or maximum.</td></tr><tr><td>Max Improve BBO</td><td>Most an order can be more aggressive than the current best bid or offer. Can prevent order from being too tight inside current spread.</td></tr><tr><td>Position Tilt</td><td>The amount order prices should shift as a position is accumulated. For example, if MM algo net buys tokens, this will lower the price of bids &#x26; offers to fade the market. Measured in price change per unit.</td></tr><tr><td>Reference Distance Fraction</td><td>Distance away from reference price to send orders. For example if Reference Distance Fraction is 0.01, the bid and offer order sent will be 1% around the current reference price (and thus 2% wide).</td></tr><tr><td>Tolerance Fraction</td><td>Amount a new order would differ from current order to cancel and replace. Used to prevent flickering quotes and unnecessary cancel and replace, as well as maintaining queue priority. Measured as a fraction, i.e. not in price terms.</td></tr><tr><td>Order Lockout</td><td>Minimum amount of time to wait between orders</td></tr><tr><td>Fill Lockout</td><td>Amount of time to wait after a trade to send a new order</td></tr><tr><td>Reject Lockout</td><td>If an order is rejected, wait this amount of time before trying again</td></tr></tbody></table>

Upon getting a fill in the Market, Spreader algo will then trade in the Hedge Market (based on the Conversion Ratio). For the above examples, if Spreader buys AAVE on Coinbase it will then sell AAVE on Binance, or if Spreader buys BTC quarterly futures on Deribit it will sell spot BTC on Binance.


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