The amounts would need to be very small and you would likely not get paid unless your trade were to actually get filled.
Yeah traders get paid only if their trade get filled. Do you think this model could be an incentive for market makers to get the exchange's order book filled ?
This model would fit the definition of incentives for an exchange to have a larger/deeper order book.
Would exchanges need to do this in order to get people to trade on their exchanges? I don't think so as there is enough of a demand to trade bitcoin for fiat as it is.
Thank you for your response,
Here's my situation : I have been working for 3 months with 2 of my friends on an option exchange for altcoin. It's a platform that will allowed traders to issue and trade options contracts on altcoins (litecoin, doge, ...) priced in bitcoin. The very few derivatives exchanges that exist offer derivatives contracts for bitcoin priced in USD. Since the majority of altcoins are traded and priced in bitcoin, why not offering derivatives (options contracts) on altcoin priced in bitcoin ? With this tool traders will be able to speculate on the future price and miners to hedge their risk and fix their future selling price (options contract are like insurances contacts)
One of my main concern for this project is how to attract market maker and get my order book filled. One solution that we found is to offer to share the transaction fees (paid by traders who initiated a market order) with market makers (traders who sends limit orders). The idea is to create enough incentives to attract liquidity in the market. I know that there is a lot more to do in order to attract liquidity, (reputation and security) but in the case of a small and unknown exchange as mine, I'm wondering if this model could help.
Options would likely not be realistic for alt coins for a number of reasons.
First of all options contracts are always and by nature less liquid then the underlying security. Since most alts are very illiquid themselves trading in options of alts would be problematic as the market makers would have difficult in hedging their bets. Your strategy of paying people for limit orders would only be successful in getting people to trade on your exchange instead of trading on another exchange (gaining market share), it would not be successful in getting people to trade securities that they would not otherwise trade in (creating or expanding a market).
Another issue is that most alts (like bitcoin) has it's holdings very concentrated in few wallets (the majority of individual alts are owned by few individual people), to make matters worse it is difficult to force disclosure of major holdings. This creates additional issues of being able to price accurately as it would be difficult to determine when prices to make major swings that could be caused by a few "insiders"