Questions tagged [market-making]
Market makers provide liquidity to the market by quoting bid and ask prices for most of the time. The pricing in absolute terms is not as important as finding relative mispricing. The market microstructure is often used to develop trading strategies.
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Theoretical models for options bid-ask spread?
I'm a programmer and recent trading enthusiast. To learn more about options I'm building a market maker trading bot. So far it gets market prices and volatility and calculates the Black&Scholes. I ...
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Option Market Making: Hedging large volumes
In the book McMillian on Options the author states that in some cases an option market maker hedges himself by purchasing longer dated options. Unfortunately, the author does not go into detail why ...
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Rationale behind trading exchange-traded vs OTC products?
Let's say I am running a fund and I want to place some bets on the market (i.e. speculate) or hedge my current positions.
Starting from this, what would be my incentives to go for exchange-traded ...
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Market making with resting orders?
I'm still confused on how to provide liquidity on the forex market using passive or resting orders and get the spread from that (selling at ask and buying from bid)
And what's the dynamics on the LOB ...
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Evaluating passive fills
Assume we look at all passive fills going through a security. How do we benchmark how good each passive fill is (relative to each other)?
We expect the edge to be (assuming midprice is our ...
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Fees from market order routing in different fee-strucuted exchanges
Let's have two exchanges A and B. Exchange A has maker-taker fee structure, while exchange B has taker-maker fee structure. What happens when a broker routes market order to an exchange B at the time ...
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What happens when someone makes absurdly high or low bid or ask on a stock?
I was thinking, what would happen if I wrote a script constantly spamming small quantity 1 dollar or maybe 0.1 dollar bids on less liquid stocks (not penny stocks) just hoping to see a situation where ...
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Pegged orders vs Cancel/Replace
Anyone with real experience between these two types?
Trying to use Pegged orders for an hft strategy (on forex) and wanted to know if someone could tell me advantages / disadvantages to use them ...
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HFT market-making in dark pools?
Is it now common practice for HFT market-making algorithms to post liquidity in dark pools and exchanges at the same time?
I ask because I have been reading some documentation (https://squeezemetrics....
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Why doesn't the overnight profit on a delta-hedged porfolio include interest on the initial selling/buying of the option?
I am self-studying and encountered the following passage from my textbook on the market maker's overnight profit on a delta-hedged portfolio:
I don't understand why their isn't a factor of $(e^{r/365}...
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How could I become a market maker in forex/equity market?
By being a market maker, I mean when I post a limit order, someone could take your order. For example, suppose during this second the bid-ask is 1,1.01 constantly and I posted a limit order to buy at ...
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Market imbalance measures for market making
The paper An Electronic Market-Maker define the market order imbalance as follows:
We will define the order imbalance as the total excess demand size
since the last change of quote by the market ...
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Is this a viable method for testing market making strategies?
I found a video game market (steam community market) which allows for trading of in game items between users, most items are <0.25 USD each, and market capitalization appears to be maybe $5-$10 USD ...
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Motivation behind stocks become flat after earnings release
Why do some stocks sometimes trade flat after releasing their earnings? Even if good or bad earnings are presented. My suggestion is that the options of the underlying stock have a very high implied ...
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Model reference price of Limit order book
first of all, the description of this Stackexchange forum says its for professionals or academics. I'm doing a lot of self studying and with that I was able to understand some white papers but still I'...
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Delta Hedge, does large stock move produce a loss?
I dont understand how MM protect themselves from large moves in underlying while being delta hedged.
Example:
MM sels 1 ATM put and sells 100stock (delta = 1) as a hedge. Now what will happen if next ...
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Dealers becoming synthetically short an out-of-the-money option
"When dealing with a large-size position, dealer, upon exercise, synthetically become short an out-of-the-money option."
How does this work, I cannot see why this happens synthetically in particular?...
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What is Toxic FX Flow debate?
So, basically I want to debate and find out the real reason behind being flag by ECNs and venues as "toxic".
How to avoid being flagged?
What kind of strategies are toxic and why?
Below is an article ...
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FIX engine for very low latency
We are building a new system where latency is key.
Either commercial or opensource, our goal is to have an easy to implement fix engine where low latency is key.
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How does a Broker-Dealer lend shares to other Broker-Dealers?
Is it possible to find out how a OTC Broker-Dealer in thinly-traded equities lends shares for short-sales to other Broker-Dealers. Which platform or process is involved?
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Market Making Literature
I am not sure if this is the correct site to ask this, if not I apologize.
I have noticed some markets that lack in liquidity, and wonder why market makers in these markets cannot provide liquidity ...
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Constructing a minute-by-minute volatility curve
For market making in front month vanilla commodity options we need a volatility curve that updates every second or so as the underlying and the options change prices.
If all the strikes have a good ...
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Fx Firm market making
I've been doing market making on forex using the last look feature so far.
Now we are moving to do on firm making, but I'm kind of lost.
To do firm making we need to post resting orders (currenex ...
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HFT to blame for Flash Crashes?
Some people 1, 2, 3 claim that High Frequency Trading is partly to blame for the extreme volatilities in the markets yesterday (24. August 2015).
Is that true?
Is the amount HFTs move even enough ...
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What market making strategies are often used nowadays ？
I am doing a survey of market making strategies, what's the popular market making strategies?
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ASX level 2 data via API
Is anybody aware of Java/C++/Python API's available for ASX stock market depth? I'm currently using IB which is ok but has a number of limitations / issues - the one I care most about is the limit of ...
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Longer term average probabilities of fills at fx ECNs?
I am wondering whether anyone can share experiences and longer term average probabilities of fills when quoting inside the spread at various fx ECNs. I need to make an assumption of the probability of ...
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Historical list of Primary Dealers in Europe
I would be interested in a list of all the banks and financial institutions that have been Primary Dealers in the European Union from the 1980s until today. For a current list you can check this pdf ...
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Text book or distilled guide to market making?
Are there any practical articles, blogs or books that describe common practices in market making and how to calculate and use common measures?
The majority of the information I found are research ...
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Quantitative Math required for Market-making?
I understand there is an awful lot of Quantitative Math required for statistical arbitrage/algorithmic trading. However, would someone "in the know" be able to tell me whether there is less ...
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Short-term directional trading
Did value of ratio between informed and uninformed traders at market, making difference to profitability of short-term directional trading on that market?
My guess is yes and better play short-term ...
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Market-Maker existence impact to short-term informed directional trading
How existence of market-maker affects short-term directional trading?
Normally when playing short-term directional we play against market marker that will cover losses from uninformed traders.
But ...
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What is the correct / expected behavior for a market order sent to an empty book?
Should it stick around until liquidity shows up? (GTC)
Should it cancel any size for which there is no liquidity? (IOC)
Is there such a thing as Market GTC or Market Orders must always be IOC?
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Estimate the market maker's price from the posted Bid/Ask and Trade price
If I see a Bid at 181.77 and and Ask at 181.78 for SPY and then immediately see a trade filled at 181.77 on BATS, then what can we conclude about market making activity?
i.e At what price did the ...
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Microstructure effects for a market maker? [closed]
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 ...
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what is considered material information? [closed]
I'm trying to understand what is considered "material" information held by an executive of a company. There is company information that an executive (say insider) will know that a public investor will ...
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How to become a registered market maker on an exchange [closed]
We are thinking of applying to become a registered market-maker on different European exchanges. The name varies from exchange to exchange (Liquidity provider on Euronext for instance).
Could anybody ...
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Distinguish between market makers and other participants?
Are there any known quantitative techniques to distinguish between market makers and other participants?
I manually MFT, have no knowledge of these specialties, and may be observing phenomena that ...
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Is price gaping the major risk that market maker has?
Suppose you are a market maker. So you put a limit price out and hope someone will cross bid/ask spread to take your limit. But there is risk that bad news could come out and market will gap. So ...
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How do I calculate Sharpe ratio from P&L?
Say I have a market-making strategy that trades intraday. I start with a flat position and finish flat too. I end up with a daily P&L $p_{today}$. Over a year of trading I get $\vec{p} = (p_1,\...
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Market making: buy on bid/sell on ask [closed]
In this thread, the top answer discusses: "buy on bid, sell on ask" as "market making" strategies.
My question is:
In layman ...
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Effective anti-gaming controls in dark pools
What are some indicators that a dark pool operator has effective anti-gaming controls in place? There are some that prohibit IOCs (immediate or cancel) but is that necessary? It seems like that could ...
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Why are there still manual market makers in options
Why are manual market makers still predominant in options markets? Why haven't algorithms replaced these market makers, as they have for liquid stocks for example?
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Survey of market making strategies and research [duplicate]
I am undergoing a focused study of market making theory. So far, I've encountered the following papers:
Market Making and Mean Reversion
Adapting to a Market Shock: Optimal Sequential
Market-Making
...
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academic papers about market making
I am looking for academic articles which model the p&L of market makers. I have read the Ho-Stoll (1984) article. Is there any recent article on this subject?
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How does Hanson's Market Maker (LMSR) work?
Implementing Hanson's Market Maker states:
If the market maker wants to quote a "current price", he can. The
current price for outcome 1 is:
$$
\mbox{price1} = \frac{e^{\frac{q1}{b}}}{e^{\frac{...
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changes in open interest vs changes in underlying volume
Has a relationship been noted?
Mostly, I'd like to know if the open interest increases on an underlying, does the underlying usually see increased trading?
My guess would be "yes" since MMs can ...
user3232
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Position management and market-making techniques
Suppose, there is a HF strategy (agent) that is based on order book microstructure, and it is able to make good executions locally. More formally, in average its execution price is better than asset ...
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Which prediction market model is efficient and simple to use?
For a college project I'm tasked with implementing prediction market. Which model of it I'd better choose?
I want something useful and simple enough for other people to quickly understand and use. (...
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Target daily ROI for a market-making algorithm
I'm designing a market-making algorithm, I was wondering what a decent ROI / day would be to aim for in such a system?
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