providing liquidity
- Thread starter Javier
- Start date
I should be doing my homework, but without going into substantial detail, liquidity providers (generally) aim to capture the difference between the bid and the ask by offering liquidity on both sides. If you get filled on both sides you've earned the spread as compensation for your services.
Do some markets have reduced commissions are even rebates?
Some equity exchanges have rebates. I don't really know very much about equity market making, but I suspect that there isn't much alpha there with retail pricing.
rmorse
Sponsor
I agree. But you need more than very low clearing and commission fees to make money this way. You need a lot of capital and an automated low latency infrastructure. It also helps to get a source of order flow.
Agreed, equity MM is well out of the average trader's reach in many respects. I presented reason one of several this is a bad idea. I drafted up a nice list of reasons why it's not workable, but it got too long, so basically I'll just summarize it by saying other more entrenched HFTs in the equities space have a major economy of scale that is not gonna be easy to overcome. There's also the fact that the people you'll be competing with are extremely competent, which I definitely overlooked when I was considering attempting this nonprofessionally.
It's my belief--backed by some rather juvenile research (which I've conducted in my dorm room...)--that something akin to market making can be workable in certain futures markets under certain market conditions. Suffice to say that true market making as the literature defines it is prohibitively difficult for retail traders for a number of reasons, especially so in equities and equity options.
The one's purposely doing so - are rebated
The one's not purposely doing so..., and caught up in the fray - are ass raped (left holding the bag) - as the "players" move along their merrily way
RN
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