Market Maker costs...

[manuka]

can anyone explain which costs MM has?

i know only one: inventory holding costs.

But can any one tell me WHAT exactly does it mean?
Why big inventory create costs?

Thanks.

 

[krazykarl]

Quote from manuka:

can anyone explain which costs MM has?

i know only one: inventory holding costs.

But can any one tell me WHAT exactly does it mean?
Why big inventory create costs?

Thanks.

There's too much info for an internet post. You need to learn more about how markets work, then you'll understand what risks a MM has.

edit: don't over-complicate it. The role of a MM is very basic, as are their costs.

 

[manuka]

Well, i've read lots of microstructure stuff where people talk about how market works and so on.... it does help to get the idea but not in case of MM costs.

And i don't think that i overcomplicate just want to get the idea straight.

about MM costs there are different opinions but i'm interested in
inventory holding costs...

if any one could help me with that

thanks 8)

 

[Bolimomo]

Quote from manuka:

can anyone explain which costs MM has?

i know only one: inventory holding costs.

What did you mean by "inventory holding costs"?

Is it the same as opportunity cost? Money that otherwise can be invested in bonds or the likes in earning interest?

 

[manuka]

thats what i want to know..... because i've not met any strict definition.....

Evrybody just say:

MM holds some inventory (position (log or short)) and because of that suffers costs if markek goes in opposite direction.

if it so. MM will blow out... sooner or later.