When building a market maker that rests limits orders on both sides of the book, what microstructure effects should we be looking at to price those orders? I’m targeting liquid futures markets, and expecting to trade 1-3% of the daily volume.

Current effects that we find useful include the book imbalance (the ratio of volume on the best bid vs the volume on the best offer), and recent trades (someone removing liquidity on the bid is bearish).

What else might impact pricing, and related issues such as portfolio valuation?

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    $\begingroup$ Hang on one second while I open up my little black book of valuable signals.... you do realize the question is a bit, ambitious, right? $\endgroup$ Jan 28 '14 at 22:56
  • $\begingroup$ I don't expect to hear anyone secret sauce, but I thought it might be possible to discuss some widely known effects, such as the ones I mentioned. For example, does the price moving away from VWAP have a microstructure effect? $\endgroup$
    – Ted Graham
    Jan 29 '14 at 16:27
  • $\begingroup$ This is not a discussion forum. Questions asking for a "lists of things" are not a good fit for the Q&A format of this site. $\endgroup$ Jan 29 '14 at 22:45
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    $\begingroup$ @statquant: That's rather hypocritical coming from someone who has yet to share valuable information themselves. $\endgroup$ Feb 4 '14 at 12:08
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    $\begingroup$ @statquant: of course you have something valuable to share. You're here because you do this for a living. So you could ask a question where the answer would be directly related to how you make money. Then you answer your own question, providing details on what gives you an edge over other market participants. $\endgroup$ Feb 4 '14 at 13:38