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I was asked the following question at an interview:

Suppose that you're an OTC trader for an exchange that trades bitcoin. What would you do in the following scenario?

A large corporate investor wants to initiate an OTC trade for $50,000$ bitcoin (BTC) to be guaranteed at a price within $1\%$ of the mid-market price. The average trading volume on the exchange is $10,000$ BTC/day and volatility has been above average the trailing two weeks (BTC price can be very volatile).

What would be an optimal answer for this?

Observations:

  • The large transaction is equivalent to $500 \%$ of the exchange's daily volume, so if we sell all the BTC at once, it will have an upward influence on the BTC price.

  • If we sell too low, the exchange could lose money if the transaction pumps the BTC price past what they were sold for.

I'm thinking that partitioning the large transaction into smaller ones might be better, but I'm not certain. Any help or insight appreciated!

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  • $\begingroup$ The downside is clear and visible, but what about the upside? Do we see the order-book, and if so how much stands at bid/ask in there. What Contacts do we have with other clients, etc... Not knowing anything about the updside I would say strictly no to guaranteeing the price in such seemingly narrow range. $\endgroup$ – Mats Lind Sep 8 '16 at 7:34

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