Why Do Market Makers Often Cancel and Replace Their Orders in a Dynamic Order Book?
Market makers constantly cancel and replace their orders to manage risk and maintain a competitive spread. In a dynamic market, prices are always moving, and the market maker must adjust their bid and offer to reflect the latest market conditions and their inventory risk.
By quickly updating their quotes, they ensure they are not executed on a stale price and maintain the desired profit margin on the spread.
Glossar
Market Makers
Function ⎊ Market Makers in cryptocurrency, options, and derivatives markets actively provide liquidity by simultaneously offering to buy and sell assets, narrowing bid-ask spreads and facilitating efficient price discovery.
Order Book Events
Mechanism ⎊ Order book events represent discrete state changes within an electronic order book, reflecting submitted, cancelled, executed, or modified orders; these events are fundamental data points for understanding market dynamics and liquidity provision, particularly in cryptocurrency and derivatives exchanges.