Redefining Crypto Quant Trading with FCFS: More Opportunities, Less Risk

1. INTRODUCTION

At Oxido Solutions, we’re constantly working to upgrade our IT architecture and improve our automated trading strategies for crypto derivatives. The latest addition to our trading setup is the First Come, First Serve (FCFS) feature.

In this blog, we’ll explain:

• The reason behind the FCFS
• What the FCFS feature is
• How it works
• Why it took six months to implement
• Key metrics
• The advantages of the new setup

2. THE REASON BEHIND THE FCFS

The crypto market has seen increasingly unpredictable and choppy price movements, requiring us to make adjustments to keep pace.

In 2023, we added the Sideways Filter to our trading setup, a tool designed to measure market momentum and only trigger trades during strong trends. At the beginning of this year, after experiencing four months of losses in 2023, partly caused by rapid price increases followed by sharp drops, we implemented a second stop-loss mechanism that activates at smaller profit margins. This way, if the price moves slightly in the wrong direction, profits are secured.

This change pushed our win rate from 45% to 80% and significantly reduced drawdowns. Our strategy now operates as a trend-following, fully automated scalping tool, utilizing both the Sideways Filter and the double stop-loss system.

One of the biggest issues that remained was that our system was trading relatively infrequently. About 97% of the time, the Sideways Filter didn’t detect actionable opportunities. To address this, we developed the FCFS feature.

3. WHAT THE FCFS FEATURE IS

In our current multi-strategy setup for Bitcoin Perpetual Futures, each strategy focuses on specific timeframes. For example, one strategy only looks for trading opportunities in the 8-minute timeframe, while another targets the 9-minute timeframe. However, with the introduction of the FCFS feature, we’ve expanded the range of timeframes where buy and sell opportunities are identified.

Now, the FCFS feature broadens the scope to search for opportunities between 6 and 14 minutes. Additionally, trades are no longer only executed by our ATR algorithm but also by our Range Maker (RM) algorithm. In the new setup, trades will be executed by two algorithms across different timeframes. The breakdown is as follows, with the algorithm followed by the timeframe:

With this expanded range, and the fact that all trades in the new setup maintain a minimum 75% win rate, we’ve significantly increased the number of potential trades. The addition of the Range Maker has also increased the uniqueness of the trades and reduced the likelihood of being copied by other bots. This opens up more opportunities for profitability, which could strongly improve overall performance. Additionally, this setup also reduces drawdowns, making the risk-reward ratio much more favorable with the FCFS feature compared to the previous system.

4. HOW IT WORKS

Our new trading setup with the FCFS feature monitors the Bitcoin Perpetual Futures market for opportunities on a first-come, first-served basis. Think of it like a store that only allows a certain number of people inside at a time. When someone enters, no one else can go in until someone leaves. In the same way, when a signal is triggered for RM 9, no other trades will be opened until the RM 9 position is closed.

It’s possible that after someone leaves the store, another customer—like RM 9—might enter again (a re-buy or re-short if the trend continues), but this is rare. More often, the next “customer” is likely to be a different one, like ATR 11 or RM 12, bringing more variety and flexibility into the trading decisions. This system ensures an organized flow of trades while maximizing the opportunities for profitability.

5. WHY IT TOOK 6 MONTHS TO IMPLEMENT

In addition to optimizing and testing the code of our multi-strategy script to support the FCFS mechanism, we had to make several other major adjustments. First, our Python-based backtesting system needed significant upgrades to simulate how the new FCFS setup would have performed using historical data. This allowed us to fine-tune performance across different scenarios.

We also had to expand our proprietary middleware, Alpha Shifter, which handles the communication of trading signals from our strategy to 16 different endpoints, including Bybit, Binance, and OKX. Since FCFS generates more trading signals and additional data, Alpha Shifter required thorough updates and testing to ensure that the increased signal flow was processed quickly and accurately, converting them into orders on the exchanges without delay or error. These upgrades were necessary to handle the extra signals and maintain the reliability of our trading strategy, ensuring smooth execution across all platforms.

6. KEY METRICS

The table below compares important backtest data from the new FCFS setup with live data from the current setup. At Oxido Solutions, we offer our trading strategies across three risk profiles: low, medium, and high. This comparison focuses on the medium risk profile, providing an indication of the potential advantages that the FCFS setup may offer.

7. ADVANTAGES OF THE FCFS SETUP

At Oxido Solutions, we design our trading strategies specifically for professional and institutional investors. The new FCFS setup offers a range of benefits that are particularly relevant to those looking for advanced, scalable and risk-focused solutions in crypto trading.

7.1. Increased Profit Potential
With the FCFS feature, the trading system identifies a wider range of opportunities across multiple timeframes, from 6 to 14 minutes, and operates with two different algorithms. This not only boosts the number of potential trades but also ensures that each trade is unique, reducing the overlap that can lead to missed opportunities. This broader scope opens the door to higher returns.

7.2. Lower Risk
By integrating the FCFS feature, we have managed to reduce the drawdown signficantly. With trades maintaining a 75% win rate and the system optimized to act only on the most robust signals, investors are exposed to less risk. This lowers the possibility of entering trades that could lead to losses, improving the overall risk-reward ratio.

7.3. Reduced Market Impact
The expanded range of timeframes and use of two separate algorithms—ATR and Range Maker—reduces the concentration of trades on specific timeframes. This dispersal minimizes market impact, allowing for smoother execution without significantly affecting the market price. This is a critical factor, especially for institutional investors dealing with large trade volumes.

7.4. Less Vulnerable to Copying by Other Bots
As the FCFS setup makes each trade decision more unique by using multiple timeframes and algorithms, it becomes harder for other trading bots to replicate the strategy. This provides our clients with an edge, keeping their strategy distinct and protected from replication in the highly competitive crypto trading space.

7.5. A Unique Addition to Your Diversified Portfolio
The advanced FCFS setup stands out as a unique and sophisticated strategy within any diversified portfolio. Its flexibility across different timeframes and algorithms allows it to complement other trading systems, enhancing overall portfolio performance without overlapping with more conventional approaches.

Thus, the FCFS setup not only strengthens profit potential but also reduces risk and market impact, making it an ideal solution for institutional investors seeking advanced, reliable, and scalable trading strategies.

8. FINAL TAKE

The introduction of the FCFS feature marks a significant leap forward for Oxido Solutions’ automated trading strategies. By broadening the range of timeframes, utilizing multiple algorithms, and improving the risk-reward ratio, the new setup offers a unique combination of increased profit potential and reduced risk. With a focus on minimizing market impact and making the strategy less vulnerable to replication, the FCFS feature positions itself as a powerful tool for institutional investors looking to stay ahead in the highly competitive crypto trading landscape.

9. DISCLAIMER

The information and opinion provided in this blog is for general purposes only and should not be considered as specific financial advice or recommendations for any individual, exchange, security, or investment product. No rights can be derived from the live performance, backtest data, or any other data mentioned in this blog. Remember, past performance is not a guarantee of future results.