Market Making Orders - Update or Add?

C

CoveredLong

What do typical algos do when an order is filled on one side and left holding inventory?

As an example, say bid is filled, left long and the ask isn't filled. Do most update the ask down or leave it as is but add another set of new bid/ask?

Just looking for general thoughts and guidance.
 
CoveredLong said:
What do typical algos do when an order is filled on one side and left holding inventory?

As an example, say bid is filled, left long and the ask isn't filled. Do most update the ask down or leave it as is but add another set of new bid/ask?

Just looking for general thoughts and guidance.
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That would depend on the market maker. They could hedge with stock, spread it out, look to scalp out, or even hedge it against a correlated stock/basket/index. No one shoe fits all in that space.
 
making markets means you are willing to buy and sell so if you're hit then place another buy less than fair value and a sell more than fair value
 
2rosy said:
making markets means you are willing to buy and sell so if you're hit then place another buy less than fair value and a sell more than fair value
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Good info, that helps.

I have a strategy that tries to earn the spread by turning the same position. It seems too path dependent and too often updating orders only serves to lock in losses. Think this will help me to reevaluate.
 
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