🧮Dynamic spreads

Dynamic spreads are a per-pair execution mechanism that enable zero-spread trading under balanced conditions and apply cost only when short-term order flow becomes one-sided. By continuously tracking net buy and sell pressure and comparing it to a configured threshold, they allow most trades to execute at the mid-price while charging impact fees only to orders that deepen existing imbalances. This ensures pricing remains efficient, discourages momentum-driven flow, and aligns execution cost with real liquidity pressure rather than applying uniform spreads.

When Are They Used?

Dynamic spreads are applied only to:

  • Less-liquid pairs, or

  • Pairs with large OI caps (to simulate liquidity constraints).

They mirror underlying market costs and adjust by trade size. We track a short-window net flow (buys − sells) that decays back to 0. If the net volume rises above a per-asset threshold, trades with the pressure pay impact, while trades against it execute at mid (0% impact)—incentivizing flow that reduces the imbalance.

Current status: Dynamic spread is off for all pairs. Stay tuned.

On/Off Behavior

  • Dynamic Spreads: ON Execution is either:

    • Mid (0%), if conditions are not met; or

    • Spread + Dynamic impact, when net flow > threshold and the order is same direction of net flow.

  • Dynamic Spreads: OFF Execution uses oracle bid/ask:

    • Buy-equivalent orders (open long / close short) execute at ask.

    • Sell-equivalent orders (close long / open short) execute at bid.

Applicability Rules

  • If |finalImbalance| ≤ netVolThreshold → execute at mid (0%).

  • If |finalImbalance| > netVolThreshold → apply impact only to the portion above threshold and only to the side that increases the imbalance.

Example Threshold = 1M, current buy pressure = 2M. Sells up to 3M clear at mid, while buys pay impact.

Price Impact: Components & Formula

Dynamic spread = Spread from oracle + Dynamic price impact.

1) Spread from oracle

Live bid/ask from the oracle.

  • For applicable trades, half-spread is applied to the portion above threshold.

  • Intuition: same “base” cost as the underlying market.

2) Dynamic price impact

Scales with short-term net volume and trade size, with extra cost in one-sided markets and down-weighting for small trades.

Variables

excessOverThreshold = |finalImbalance| − netVolThreshold   (must be > 0)
thresholdTradeSize  = min(tradeSize, excessOverThreshold)
thresholdRatio      = thresholdTradeSize / excessOverThreshold
excessSquared       = excessOverThreshold²

Percent impact

priceImpactP = (spreadComponent + dynamicComponent) / tradeSize * 100

Components

spreadComponent  = (spread * thresholdTradeSize) / 2
dynamicComponent = (thresholdTradeSize * thresholdRatio) * (priceImpactK * excessSquared)

  • spread: current oracle spread (live quote).

  • priceImpactK: curvature factor (how fast cost grows with excess flow).

  • thresholdRatio: scales down the charge for small trades so small orders are minimally affected.

Execution Logic (Side Selection)

  • Buy pressure (finalImbalance > 0)

    • Buys (open long / close short): pay impact.

    • Sells (close long / open short): mid (0%).

  • Sell pressure (finalImbalance < 0)

    • Sells: pay impact.

    • Buys: mid (0%).

This pushes flow to offset the current imbalance.

Decaying

Net volume decays over time toward zero. The decay behaves similarly to a negative exponential, meaning it falls quickly at first and then tapers off. Until it drops below the per-asset threshold, impact can still apply to orders that increase the current net value. You can see the exact remaining decay time in the trading form under “Simulated spread”. This value reflects the pair’s configured decayRate and current net flow, and updates in real time.

Triggers: TP / SL / Liquidation

  • Take Profit (TP) — Triggered on price after impact You realize the exact % profit you set. If net flow is against you, the TP may trigger slightly later to ensure you receive the configured %.

  • Stop Loss (SL) / Liquidation — Triggered on mid price We use mid for predictability. If net flow is against you, P&L may be slightly lower than expected, because the trigger is at mid but execution may incur spread + dynamic impact when applicable.

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