Q3 Liquidity Report: Huobi Futures Kaiko Data – Medium

Market depth for BTC and ETH contracts increased significantly since July

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Kaiko, cryptocurrency market data provider, worked with Huobi Futures to analyze order book liquidity for a selection of Futures and Swap contracts throughout Q3.

Over the past year, Huobi Futures has grown to become one of the highest-volume derivatives marketplaces in the cryptocurrency industry.

In this report, we look at order books for futures and swaps to understand how liquidity has evolved on Huobi since the start of Q3. We found that since July, Bitcoin and Ethereum futures and swaps contracts exhibited an increase in average market depth. We also determined that the BTC Quarterly and Swap contracts were the most liquid in Q3 and that Bi-weekly contracts showed the most consistent growth for all assets analyzed.

Defining Order Book Liquidity

Liquidity is the degree to which an asset can be easily bought or sold on a marketplace at stable prices that reflect its intrinsic value. Liquidity can be measured in a variety of ways, one of which is trade volume. However, order book data provides a more comprehensive picture of an asset’s liquidity because it reveals information about the stability and ease with which an asset can be exchanged.

Order book data encompasses the underlying supply and demand of an asset in the form of bids and asks, which are placed by market makers and eventually executed as trades. This data provides an “under-the-hood” look at a market’s microstructure, providing unique insights into market making behavior and the overall liquidity of a trading pair.

Weekly and Bi-weekly Contracts Show Consistent Growth

Huobi’s Weekly and Bi-weekly contracts exhibited an increase in average market depth throughout Q3. Market depth refers to the quantity of bids and asks placed on an order book within 150 price levels. An increase in depth would typically indicate that a market is more liquid because larger market orders at a range of price levels are better able to be absorbed by the order book.

From July to September, average market depth grew for BTC, ETH, XRP, and LINK Bi-weekly and Weekly futures contracts. Since the start of Q3, BTC Bi-weekly average market depth grew a total of 31% and ETH depth grew 16%. BTC Weekly market depth grew 36% and ETH market depth grew 19%.

When analyzing the raw data, we can observe that growth for market depth slowed slightly in September for Weekly contracts. However, Bi-weekly contracts continued to climb, with average market depth in July, August, and September gaining consistently for all assets. This indicates that overall liquidity for Bi-weekly contracts is growing faster and more consistently compared with Weekly contracts.

Most Liquid Contracts

The bid-ask spread is one of the most common indicators of liquidity, and measures the difference between the best bid and the best ask on an asset’s order book. Narrower spreads typically indicate that a market is more liquid. In Q3, we can observe that the BTC Quarterly contract had the narrowest spreads, and can thus be considered most liquid based on this particular indicator.

The Q3 average for market depth indicates that the BTC Swap and the BTC Bi-Weekly contracts were nearly tied for highest average depth.

When analyzing average price slippage for all Bitcoin contracts in Q3, we found that the BTC Quarterly contract had by far the lowest percentage slippage for a simulated $1 million sell order. Price slippage measures the percentage difference between the expected price of the trade and the price level at which the trade is executed. Markets with lower price slippage are considered more liquid because it is ultimately easier to exchange the asset at stable prices.

Based on the above three metrics — market depth, bid-ask spread, and price slippage — we can conclude that the BTC Quarterly (narrowest spread and lowest slippage) and the BTC Swap (highest market depth) had the strongest order book liquidity in Q3.

Ethereum’s Summer Bull Run

This summer proved to be the summer of DeFi which had a positive impact on Ethereum’s price, trading volume, and order book liquidity. We can observe that market depth for Ethereum futures and swap contracts grew significantly since July 1st, with all 5 contracts ending September with a higher average market depth.

The 7 day moving average of market depth, which equals the sum of all bids and asks placed on the contract’s order book within 150 price levels, shows a marked increase around the end of July which is when the price of ETH began climbing as DeFi markets took off. Market depth for ETH Swap, Weekly, Bi-weekly, Quarterly, and Bi-quarterly contracts all started gaining around this time. ETH’s Swap contract is by far the most liquid, averaging between $6 million and $7 million in market depth per day, significantly higher than other expiries.

Conclusion

Overall, market depth for Huobi Futures ended Q3 higher on average than at the start of July, an indicator that liquidity is growing on the exchange. ETH and BTC futures exhibited the greatest increase in depth, and possessed the narrowest spreads and lowest price slippage out of all assets analyzed.

Ultimately, order book liquidity is important because it makes the process of price discovery more efficient, benefitting both market makers and price takers. Measures derived from order book data should be an essential component of a trader or researcher’s toolbox when studying market liquidity.

Methodology

All Kaiko data used in this analysis is derived from order book snapshots taken twice per minute for all contracts. Each order book snapshot consists of the 150 best bids and asks, which are summed to find the market depth. Spread is the difference between the best bid and the best ask, divided by the midprice. Slippage is the difference between the expected price of a trade and the price level required to fully execute the trade and is calculated by simulating a $1 million order on a raw order book snapshot. Averages of market depth, spread, and price slippage are taken at 6 hour intervals. More information on Kaiko data can be found here.

About Kaiko

Kaiko is the premier cryptocurrency market data provider for professional traders, researchers, exchanges, fund managers, and custodians. Our data services enable seamless connectivity to historical and live data feeds from 100+ spot and derivatives exchanges. We provide highly-granular trade data, order book snapshots, tick-level order books, and aggregated datasets going back 5+ years.

Additional Information

Website: www.kaiko.com

Research Newsletter: https://www.kaiko.com/pages/research-factsheet

Data Dictionary: https://www.kaiko.com/pages/cryptocurrency-data-types

API Documentation: https://docs.kaiko.com/#introduction

Twitter: https://twitter.com/KaikoData

Contact Form: https://www.kaiko.com/pages/contact-kaiko


Q3 Liquidity Report: Huobi Futures was originally published in Kaiko Data on Medium, where people are continuing the conversation by highlighting and responding to this story.

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