A market maker quotes bid and ask prices, earns the spread when both sides fill, and manages the inventory risk in between.
Everyone that writes an article on market making will hit you with the Avellaneda-Stoikov model and there will be a ton of calculus that comes attached with it. There is certainly no shortage of such articles, so I want to instead reason with you about the parameters of a market maker and why you should care about them rather than showing you a bunch of math.
What I'm more interested in doing is to give you a working quoting system that decides how wide to quote, how to skew quotes based on inventory, and when to stop quoting entirely that you can try as a reasonable first pass in any exchange of your choice.
How To Correctly Reason About A Market Maker
A market maker quotes bid and ask prices, earns the spread when both sides fill, and manages the inventory risk in between. Everyone that writes an article on market making will hit you with the Avellaneda-Stoikov model and there will be a ton of calculus that comes attached with it. There is certainly no shortage of such articles, so I want to instead reason with you about the parameters of a market maker and why you should care about them rather than showing you a bunch of math. What I'm more interested in doing is to give you a working quoting system that decides how wide to quote, how to skew quotes based on inventory, and when to stop quoting entirely that you can try as a reasonable first pass in any exchange of your choice.