Market making involves supplying tradable quotes while managing the positions those quotes can create. Collecting a spread is only the visible part of the strategy. The less visible parts are inventory, event risk and the possibility that a counterparty reacts to information faster than you do.
Define a quoting range
Start with your valuation and decide which buy and sell prices remain acceptable if they are filled. A quote should correspond to an exposure you can explain, not merely to a desire to appear near the market. Size matters alongside price: a small profitable spread can be overwhelmed by a large unfavorable position. Review the assumptions behind the valuation before updating either side.
Model inventory after unequal fills
You may receive fills predominantly on one side. Buying ten times while selling once can leave you with a large directional position even if every quote looked balanced initially. Establish an inventory limit and describe how quotes change as that limit approaches. A strategy that works only when fills arrive symmetrically is unlikely to describe actual event-driven conditions reliably.
Understand adverse selection
A quote can remain visible after the information behind it becomes outdated. Faster participants may choose to trade against that stale valuation, leaving you with a position whose price immediately deteriorates. Measure the relationship between fills and later prices instead of assuming every execution captures a profitable spread. Cancellation speed, observation delays and scheduled news can all affect the result.
Evaluate rewards separately from trading
Official documentation describes market-making and incentive programs, but incentives do not eliminate losses from inventory. Track spread results, fees, rebates and changes in position value as separate components. Compare performance during volatile periods with calm periods. A daily reward number can look impressive while the overall strategy loses more on exposed positions, so report the combined result rather than the most flattering component.
Questions & answers
Is market making direction-neutral?
Not automatically. Unequal fills can build directional exposure to an outcome.
Does earning a rebate prove the strategy is profitable?
No. Trading losses and inventory changes may exceed the incentive received.