# Setting up your Market-Making Order

## Config Options 🎚

Let's start by looking at the different **config options** you have available to you when you're creating a market-making order.

### 1 Starting price

<figure><img src="https://3364018093-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FTP1CBEbwTzCoyWl9J8MH%2Fuploads%2FZpf2nrfGKOQ2NbOBDUl0%2FScreenshot%202022-10-05%20at%2017.55.28.png?alt=media&#x26;token=4700cdce-dc56-4eac-958e-c86453a7c24e" alt=""><figcaption></figcaption></figure>

This is the price at which first sale will happen (the first purchase will be just under this price).&#x20;

✅ We recommend setting it **as close to the floor** as possible.&#x20;

{% hint style="warning" %}
If your starting price is **too far away from the floor** your order **won't get any trades.**
{% endhint %}

### 2 Delta / "Change By"&#x20;

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The "change by" parameter, or "delta", is actually 2 params in one:

1. **Curve type** (selected by the two ◎/% buttons on the left
2. **Step size** (the number you enter)

Here's a quick visual guide to each of the 4 options:

<figure><img src="https://3364018093-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FTP1CBEbwTzCoyWl9J8MH%2Fuploads%2FeWUBewqwkFPWm0MOouvy%2Fimage.png?alt=media&#x26;token=d0cb840d-013d-4c50-ab3d-463eb1f2d716" alt=""><figcaption></figcaption></figure>

**Linear** curves are great for more **stable** NFTs that you don't expect to move as much. Think your  SMBs, Claynosaur and Okay Bears! 🐒

**Exponential** curves are great for **volatile** NFTs that **move quickly**. Think your new hot mint that is sitting at 1-5 SOL. 🔥

**Large step size** lets you cover a **broad range** of prices. It makes your order **less risky**, but you'll probably earn **fewer fees. 😢**

**Small step size** lets you cover a **narrower range of prices**, but do so **more effectively**. Your order will be **riskier** but you'll earn **more fees**. 💸

{% hint style="info" %}
What do we mean by order risk here? Check out [impermanent-loss](https://docs.tensor.trade/provide-liquidity/advanced-concepts/impermanent-loss "mention")
{% endhint %}

✅  So here's a good way to think about it:

* **Expensive, stable** NFT 👉 Pick **linear** curve.
* **Cheap, explosive** NFT? 👉 Pick the **exponential** curve.
* Want to take **less risk**, but make **less fees**? 👉 Pick a **large** step size. &#x20;
* Want to take **more risk** & make **more fees**? 👉 Pick a **small** step size. &#x20;

### 3 Market-Making Fee

<figure><img src="https://3364018093-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FTP1CBEbwTzCoyWl9J8MH%2Fuploads%2FEADYuATmVLigf9vGpBLT%2FScreenshot%202022-10-05%20at%2017.54.59.png?alt=media&#x26;token=be585d27-fd5b-4811-be89-aa0059439e6a" alt=""><figcaption></figcaption></figure>

The market-making fee is how you make money as a market-maker. You can set this to be anything in the range of **0-25%**.

The fee gets charged to the **seller** of the NFT when they sell an NFT **into your pool**.

If your fee is 25% and the current price is 1 SOL, **the seller will see 0.75 as the price** (because you're keeping 0.25 for yourself).

{% hint style="warning" %}
The **higher** your fee, the **less competitive** your order.
{% endhint %}

Let's think about this:

* Trader A is buying an NFT at 1 SOL but has a 25% fee
* Trader B is buying an NFT only at 0.9 SOL but has a 5% fee

Even though *in theory* trader A is paying more (1 SOL vs 0.9 SOL) - trader B ends up winning because of lower fees. B's shown price will be \~0.85, while for A it will be 0.75.

✅ We think fees in the range of 1-5% are the most competitive.

{% hint style="info" %}
To learn what APY you can expect from a market-making order check out [what-apy-can-you-expect](https://docs.tensor.trade/provide-liquidity/what-apy-can-you-expect "mention")
{% endhint %}

### 4 Position Size / Quantity

<figure><img src="https://3364018093-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FTP1CBEbwTzCoyWl9J8MH%2Fuploads%2Fa7zaYBXbLXeIMEXj3fqr%2FScreenshot%202022-10-05%20at%2017.55.53.png?alt=media&#x26;token=70c1a8e0-18b7-4a1a-926e-752f2f947025" alt=""><figcaption></figcaption></figure>

Finally, there's the size of your order. The more NFTs / SOL you deposit, the more trades you'll be able to accommodate.

{% hint style="success" %}
You should worry the least about this parameter. It's much better to set up a **small pool** with the **correct starting price/delta / MM fee** than to set up a large pool and mess up any of those.
{% endhint %}

### Summary&#x20;

So to summarize, here's how you should think about config options:

<table><thead><tr><th width="212">Config option 🎚</th><th>Recommendation ✅</th></tr></thead><tbody><tr><td>Starting price</td><td>Set it <strong>close to floor</strong></td></tr><tr><td>Curve type</td><td><p><strong>Expensive, stable</strong> NFT 👉 Pick <strong>linear</strong> curve</p><p><strong>Cheap, explosive</strong> NFT? 👉 Pick <strong>exponential</strong> curve</p></td></tr><tr><td>Step size</td><td><p><strong>Less risk</strong>, but make <strong>less fees</strong> 👉 Pick <strong>large</strong> step size</p><p><strong>More risk</strong> &#x26; make <strong>more fees</strong>? 👉 Pick <strong>small</strong> step size</p></td></tr><tr><td>Market-making fee</td><td><strong>1-5%</strong> is reasonable. The lower you set it, the <strong>more trades</strong> you'll get -> which might mean the <strong>more fees</strong> you make!</td></tr><tr><td>Position size</td><td>As much as you can!</td></tr></tbody></table>

## 3 Simple Config Templates ⚙️

Now let's play out some potential scenarios and what kind of MM pools you'd set up for each.

*An example assumes you have a bag of \~30 NFTs and the equivalent amount of SOL to market-make with.*

### 🟩 Low Risk:  "I'm no Pro Trader" Order

You: &#x20;

* **don't have a strong opinion** on where the **market** goes (up? down? flat? ¯\\\_(ツ)\_/¯)&#x20;
* are **ok gaining a few NFTs** from this collection **or losing a few** - but you don't want to 2x your bag, or lose all of it
* generally want to "**set it and forget it**"

The config:

* 💲Starting price = **floor price**
* **📈 Exponential curve**. This will ensure that if the price does move a lot in any one direction, your pool isn't exhausted
* **20%+ delta**. This way if the price 2x's you'll only sell <5 NFTs out of your 20-30
* **💸 5-10% MM Fee**. You're providing over a very broad range already, you can easily set a higher fee

Explanation:&#x20;

You're setting up a **very broad order** that captures a lot of range. You're **not** expecting a lot of **trades** nor a lot of **fees** - but you'll make some if the market is volatile.&#x20;

{% hint style="success" %}
On the positive side, you're also **very unlikely to be wrong**. When you're providing liquidity over such a broad range, the market would really need to do something crazy (5x?) for you to lose all of your NFTs. And even then - hey you sold them off at 5x!
{% endhint %}

### 🟨 Medium Risk: "Replicate Royalties" Order

You:

* want to **replicate royalties** (so earn \~5-10% in annual yield)
* are **ok having meaningful changes** in your bag - not all of it, but **50% up or down**
* generally want to "**set it and forget it**", although you might have to edit the order if the market 3-4x's

The config:

* 💲Starting price = **floor price**
* **📈 Exponential curve**. Still better range than linear gives you more protection
* **🎚 10-20% delta**. This way if the price 2x's you'll only sell 5-8 NFTs out of your 20-30
* **💸 \~5% MM Fee**. Should be just enough to cover your royalties (remember you're also getting a fixed 0.9% from Tensor)

Explanation:

You're setting up a **somewhat broad order**, but your bag **could shift significantly** if the market is 3-4x. Eg with a 10% delta you'll sell off 50% of your bag if the market does a 4x. In return, you expect to **earn some nice fee income**, which will let you replicate your lost royalties.

{% hint style="success" %}
We think this is more or less the **optimal config** for **collections providing liquidity for their own NFTs**.
{% endhint %}

### 🟥 High Risk: "Here to Make $" Order

You:

* are here to **earn a high amount of fee income**
* are **ok depleting your SOL balance or selling off all your NFTs** (the ones in the order ofc) if the market moves a lot
* are an **active participant in the market**, monitor your order daily, and adjust for any news events

The config:

* 💲Starting price = **floor price**
* **📈 Linear** or **Exponential curve**. You'd pick linear for larger collections (SMBs) and smaller for exponential. To be honest, in the tight range you're providing liquidity it might not even matter
* **🎚 <10% delta**. At 5% if the market 4x's you'll sell your 30 NFTs
* **💸 <5% MM Fee**. You want your prices to be most competitive, so you can't afford a high fee. You expect to make it up in volume though

Explanation

You're setting up a **very tight order**. You're ok buying/selling a ton of NFTs if the market moves a lot on you, but that's ok because **you know what you're doing** and will be monitoring the order closely.

{% hint style="success" %}
The beauty of TensorSwap is that it **offers something for everyone**. If you're a pro and know what you're doing - by all means go aggressive and capture those juicy fees.
{% endhint %}