What Is a ‘Market Maker’ and How Does It Differ from an HFT Arbitrageur?
A market maker provides liquidity by simultaneously placing both buy (bid) and sell (ask) limit orders. They profit from the bid-ask spread.
An HFT arbitrageur, in this context, is a 'taker' who exploits mispricing between markets or assets. While some HFT firms act as both, a pure arbitrageur seeks risk-free profit from price differences, whereas a market maker takes on inventory risk for the spread.
Arbitrage enhances efficiency; market making provides liquidity.
Glossar
Arbitrageur
Participant ⎊ An arbitrageur is a sophisticated market participant who capitalizes on transient price discrepancies across identical or economically similar assets in different markets.
HFT
Velocity ⎊ This strategy relies on ultra-low latency infrastructure to execute a massive volume of orders in fractions of a second, capitalizing on minute price discrepancies.
Hft Firms
Algorithm ⎊ High-frequency trading firms leverage sophisticated algorithmic strategies to exploit fleeting market inefficiencies across cryptocurrency derivatives, options, and traditional financial instruments.
Market Maker
Agency ⎊ A market maker in cryptocurrency derivatives functions as a principal, providing liquidity by simultaneously posting bid and ask prices for contracts, notably perpetual swaps and options.
Inventory Risk
Exposure ⎊ The core of inventory risk within cryptocurrency derivatives, options trading, and financial derivatives stems from the potential for losses arising from unhedged positions or imbalances between assets and liabilities.