High-Frequency Grid Market Making with Inventory Skew

Summary

This tutorial describes a high-frequency grid strategy that places passive limit orders at regular intervals around the mid-price. It maintains a fixed number of buy and sell levels, refreshes orders as the market moves, and limits new orders based on the current position. A variation skews the quoting center against inventory: long positions shift quotes downward, while short positions shift them upward. The tutorial compares weaker and stronger skew and discusses multi-asset backtesting.

The examples use futures order book data and a backtesting framework with queue, fee, and latency models. The author cautions that sharp equity changes under strong skew may not be realizable when actual order latency is considered, and emphasizes using historical latency data. The page also states that its results assume a specified market-maker rebate, so performance depends on fees, rebates, fills, and execution assumptions. Its code is instructional; results are not a guarantee of live profitability.

Key ideas

• The basic strategy posts a fixed grid of passive buy and sell orders around the mid-price.
• Position limits restrict additional orders as inventory grows.
• Inventory skew moves quote prices to manage directional exposure.
• Backtest outcomes depend on queue behavior, fees, rebates, and order latency assumptions.
• The tutorial cautions that strong-skew equity spikes may not be achievable in live trading.

Tags

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