Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

I'm designing a market-making algorithm, I was wondering what a decent ROI / day would be to aim for in such a system?

share|improve this question
4  
Aim for something > 0%. –  Joshua Ulrich Dec 18 '12 at 19:25
    
Some additional research suggests that 1% might be optimistic for a daily ROI. –  wildbunny Dec 18 '12 at 22:10
    
Dude, you are way too late to the game. The show has long moved on from equities to currencies. And when designing strategies, in case you ever managed risk and traded, you do not start out with how much return you may achieve. That is what your research should tell you. "Don't count your chickens before they've hatched" –  Matt Wolf Dec 19 '12 at 0:26
    
Hey forgot to mention, your ROI will also be tied heavily to transaction costs + margin req, which depends on your exchange membership/negotiation with the direct access broker. –  Rock Dec 20 '12 at 9:02

1 Answer 1

up vote 1 down vote accepted

The best options AMM guys are rumored to capture roughly 1/3tick per round trip, net of transaction costs + implementation shortfalls. I had worked for a regional index options MM. With the growth of competition in the recent years, expected returns are actually much lower than that today.

So realistically, in today's environment, you could net maybe 1/5tick per round trip. Estimate the average number of round trips expected per day, and you have all variables needed to work out ROI. good luck.

share|improve this answer
    
OP, could you show some basic respect and upvote answers, particularly those you marked as correct? –  Matt Wolf Dec 19 '12 at 0:27
    
I would love to, but I need a certain number of points before I'm allowed to, which is looking impossible since this question has been down-voted so much :) –  wildbunny Dec 19 '12 at 8:23

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.