Trading desk: advanced order flow
Thinking like a market maker
A market maker (MM) quotes both sides continuously and earns the spread, while managing its inventory. Understanding its equation means understanding why some levels "stick", why the book empties before news, and why price sometimes hunts liquidity before moving on.
The skew
When its inventory leans to one side, the MM shifts its quotes to rebalance. Long 200 contracts it did not want? It lowers its offer to sell more easily, and lowers its bid to buy less. The result: it makes an entry easier on one side, and you can see that skew in the asymmetry of the book: more displayed size on one side, a best bid or best ask that steps back.
The rest of this lesson is for students
- Its equation
- What makes it pull out
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