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In addition to ThatDataGuy@ThatDataGuy reply, that MM decide which positions and when to hedge, another point in ETF market making is the following:

For hedging positions on large baskets (as indexes) the best solution is not usually to hedge on all components, but to do some kind of analysis to see what are the main factors driving the performance of that particular basket. This does not mean hedging the largest positions on the index, but trying to decompose it into factors. For example, for hedging SPY, one possibility could be using a NASDAQ ETF plus some other smaller ETFs on industrial, services and banking companies, etc. assigning weights so that the performance of your hedging is as close as possible to the index in mind, and at the same time minimizing hedging costs.

In addition to ThatDataGuy reply, that MM decide which positions and when to hedge, another point in ETF market making is the following:

For hedging positions on large baskets (as indexes) the best solution is not usually to hedge on all components, but to do some kind of analysis to see what are the main factors driving the performance of that particular basket. This does not mean hedging the largest positions on the index, but trying to decompose it into factors. For example, for hedging SPY, one possibility could be using a NASDAQ ETF plus some other smaller ETFs on industrial, services and banking companies, etc. assigning weights so that the performance of your hedging is as close as possible to the index in mind, and at the same time minimizing hedging costs.

In addition to @ThatDataGuy reply, that MM decide which positions and when to hedge, another point in ETF market making is the following:

For hedging positions on large baskets (as indexes) the best solution is not usually to hedge on all components, but to do some kind of analysis to see what are the main factors driving the performance of that particular basket. This does not mean hedging the largest positions on the index, but trying to decompose it into factors. For example, for hedging SPY, one possibility could be using a NASDAQ ETF plus some other smaller ETFs on industrial, services and banking companies, etc. assigning weights so that the performance of your hedging is as close as possible to the index in mind, and at the same time minimizing hedging costs.

Source Link
KT8
KT8
  • 873
  • 5
  • 21

In addition to ThatDataGuy reply, that MM decide which positions and when to hedge, another point in ETF market making is the following:

For hedging positions on large baskets (as indexes) the best solution is not usually to hedge on all components, but to do some kind of analysis to see what are the main factors driving the performance of that particular basket. This does not mean hedging the largest positions on the index, but trying to decompose it into factors. For example, for hedging SPY, one possibility could be using a NASDAQ ETF plus some other smaller ETFs on industrial, services and banking companies, etc. assigning weights so that the performance of your hedging is as close as possible to the index in mind, and at the same time minimizing hedging costs.