Is my TPI penalised for sitting out on trades?

In terms of broker order flow, it is in the nature of the market making beast that if market makers are short it is because the order flow is generally to buy. In Volcube, you need to adjust your pricing accordingly. If you are sitting out on trades, this in itself is not ‘punished’ directly. In reality, this could be best approach to take, otherwise a market maker will soon breach his limits. But if you have used up too much of your risk allowance, too quickly, this will be indirectly penalised via any later missed opportunties. Often the market maker is showing a two-sided price and hoping not to trade on one side! In Volcube, if you skew your prices you are more likely to trade on the side you skew to; show a higher bid and you are more likely to buy. But if the trend is to buy and vol is bid, that is out of your control, just as in the real world. Market makers will still look to continue to ‘take ticks’ (selling and buying back for a profit) in a trending vol market (if they have enough risk allowance left), whilst also looking to manouevre their position. Showing appropriate quantities also makes sense and is rewarded in the TPI.

Have a question for the author? Happy to help! Email [email protected].

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