From theory to practice - page 413
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Recent measurements EURUSD
Nikolay Demko:
Ok, to get to the point, the market maker buys and sells at the same time, he is the liquidity provider, and the market goes in one direction, prices go up and MM sells, if the market goes back it is no problem, he recovers, but if not - who compensates for the losses of MM who has taken a position against the trend?
By the time the price of the dollar changes by a hryvnia, the bank will have scrolled that dollar 100 times and earned 100 hryvnias on it.
A market maker works on a similar principle.
It's like a commercial bank in your city. It buys a dollar, then sells a dollar. How often does it change price? Maybe once a day.
By the time the price of the dollar changes by a hryvnia, the bank will have scrolled this dollar 100 times and earned 100 hryvnias on it.
A market maker works on a similar principle.
In forex the volumes are many times higher and the speed is also higher.
The answer is simple, MM insures against hang-ups of unprofitable positions by buying options.
This is why at such moments, when certain exchanges are closed and insurance options cannot be purchased or in smaller volumes (the exchange differs from the exchange in terms of liquidity),
this is when MM expands spreads, thus discouraging most participants from trading.
In other words MM develop mechanisms of getting risk-free profit.
And it is the rules of these mechanisms that create this picture of the market. Just like setting some rules for cellular automata in the game of Life, creates the game picture.
Both have their own stable patterns that do not depend on the location of the structure.
And by the way yes, simple rules have a fractal effect on the picture both in the small resolution and in the large horizon.
Now imagine the palette of a Life game, and calculate some characteristics by statistical methods.
Can you predict what scenario the picture will develop in Life? The question is rhetorical.
Stat. methods are powerless to predict even simple cellular automata because the dependencies are algorithmic, not statistical.
The answer is simple, MM insures against hang-ups of losing positions by buying options.
That is why at times when certain exchanges are closed and insurance options cannot be purchased, or in smaller volumes (exchanges differ from exchanges in terms of liquidity),
why, then, are option volumes so small. 10 000 000 000.
versus 5,000,000,000,000 daily forex market volume.
500 times less.
http://www.cmegroup.com/trading/fx/g10/euro-fx_quotes_volume_voi.html#tradeDate=20180614
then why is the volume of options so small. 10 000 000 000.
versus 5,000,000,000,000 daily forex market volume.
500 times less.
http://www.cmegroup.com/trading/fx/g10/euro-fx_quotes_volume_voi.html#tradeDate=20180614
So why the volume of options is so small. 10 000 000 000.
vs 5,000,000,000,000 daily forex market volume.
500 times less.
http://www.cmegroup.com/trading/fx/g10/euro-fx_quotes_volume_voi.html#tradeDate=20180614
If markets are buying both the ask and the bid at the same time, then there is nothing to insure, only position misalignments should be insured.
A rise in the ask reduces the willingness of markets to sell, a fall in the bid reduces the willingness of markets to buy.
With a skewed position MM first of all removes the price, disrupting the desire to buy/sell respectively (simultaneous repurchase of both asc and bid and leads to an expansion of the spread, the mechanism is the same).
Actually this is the reason why the cases of position skewing though occur regularly, but the volumes to insure are times less.
In other words, MM has emergency methods of risk management, and when they do not work, they buy options.
By the way, in MT5:
the process will be increasingly non-random.
what kind of distribution will this give you?
and most importantly, what will it give you?
This will give the illusion of a random distribution, which makes for a pleasant mental experience while sewing money bags. ))
And never mind that the initial process itself remains non-random and almost unrelated to these random samples ...
PS Well ok, closer to the subject, market maker buys and sells at the same time, well he is a liquidity provider, and so the market went in one direction, those prices rise and MM sells, if the market rolls back no problem, he recovers, but if not? who compensates for the losses of MM who took a position against the trend?
and in the case of the kitchen? the kitchen is a counterparty to its customers.
Imagine that the kitchen got a position against the trend.
and in the case of a kitchen? a kitchen is a counterparty for its clients.
Imagine that the kitchen has accumulated positions against the trend. what it will do with them.
It is none of our business at all. ) And how they hedge their risks is nobody's business but theirs.
By the way, all the DCs are kitchens, simply by their very definition). Even legally.