What techniques to market makers use to manage operational and 'massive' adverse selection risks?

[Occam]

I've played around manually and never get hit absent a market move, so I'm assuming there's just so little market order volume that the bid/ask is relatively meaningless? If nothing else I've thought it would be a viable strategy to try to catch the other side of all the Interactive Brokers autoliquidations, although I'm guessing a certain counterparty always somehow manages to offer just inside the bid/ask on those.

Interactive Brokers Group, in addition to the brokerage, owns a counterparty entity -- it's called Timber Hill, and IB's so-called "smart" router can route there at its discretion. This is what is known as a "potential for conflict of interest". I have no idea whether IB routes to its own entity during an auto-liquidation (and in fact I would hope that they would go out of their way to NOT route to their own entity in such circumstances), but the routing to Timber Hill is something to consider if you're thinking about any strategy that depends on trading with customer flow from IB.

 

[IAS_LLC]

Well, you can just run it in the wild for 1 hour, 2 hours, 4 hours, or even a day, and then compare your real results with your SIM results. If the results differs drastically, you want to look into the difference. But if the result is profitable, try it again next day.

Yup, that's what my plan is

 

[cjbuckley4]

Is anyone here familiar with In Flight Mitigation? The CME documentation doesn't define when a "flight" begins, but (going back to my original question) if you're trying to get out of the way of order flow across multiple levels extremely quickly, this could perhaps be helpful. I don't think any of the retail platforms seem to support this, but I found some really really obsolete TT literature that mentioned it. Maybe this would be an approach to the "multi price level adverse selection risk" I discussed earlier? The documentation also doesn't specify if we're discussing full cancellations or modifications only.

By the way, since some people "in the know" have posted on this thread...is there a more professional name for what I refer to as "CME documentation" than "documentation" or "EPICSANDBOX?"

Thanks.