Estimating Market-Making Returns from Net Spread per Round Trip

Summary

The document asks what daily return a market-making algorithm should target. Its answer suggests framing the estimate through net profit per completed round trip rather than choosing a daily ROI figure in isolation. The cited practitioner account gives an approximate capture per round trip in ticks for options market makers, after transaction costs and implementation shortfalls, and says competitive pressure has reduced expected returns over time.

To translate that premise into a daily estimate, the response says to estimate the number of round trips expected per day and combine it with net capture per round trip. The figures are presented as rough practitioner guidance, including a historical comparison, not as a general benchmark or guaranteed outcome. The document does not specify capital deployed, inventory exposure, market conditions, risk limits, or how to forecast trade frequency. Actual ROI therefore depends on the strategy and its costs, and the stated tick capture alone is insufficient to determine a return on capital.

Key ideas

• Estimate market-making performance from net capture per completed round trip.
• Account for transaction costs and implementation shortfalls when estimating capture.
• Expected round trips per day connect per-trade economics to daily results.
• Competition can reduce achievable market-making returns over time.
• Tick capture alone does not determine ROI without capital, exposure, and risk context.

Tags

# Target daily ROI for a market-making algorithm


# Target daily ROI for a market-making algorithm












I'm designing a market-making algorithm, I was wondering what a decent ROI / day would be to aim for in such a system?

## Answer by Rock (score 6, accepted)

https://quant.stackexchange.com/a/4800

The best options AMM guys are rumored to capture roughly 1/3tick per round trip, net of transaction costs + implementation shortfalls. I had worked for a regional index options MM. With the growth of competition in the recent years, expected returns are actually much lower than that today.

So realistically, in today's environment, you could net maybe 1/5tick per round trip. Estimate the average number of round trips expected per day, and you have all variables needed to work out ROI. good luck.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.