What Risks Does a Market Maker Face When Their Win Rate Is Too High?

A market maker with a consistently high win rate likely has quotes that are too aggressive (too tight a spread), which means they are not being adequately compensated for the risk they are taking. The primary risk is "adverse selection," where they are frequently trading against informed counterparties who know the market is about to move.

This leads to taking on poorly priced inventory and a lower profit per trade, potentially resulting in overall negative profitability despite high volume.