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How Firm Forex Market Making Differs from Last Look

Article Quant Q&A · Author: Ariel Silahian
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Summary

The document contrasts last-look foreign exchange market making with firm, no-last-look quoting. With last look, the market maker streams indicative prices and receives incoming orders that it may reject. Under no-last-look arrangements, the venue streams indicative prices while the market maker posts orders and takes on execution risk until those orders are canceled.

Some electronic communication networks use one API for both aggressive orders and passive resting orders; a firm market maker can post resting orders, such as good-till-canceled orders, and cancel them when quotes need changing. Other venues offer a separate no-last-look API, with a feature that prevents matching against other market makers. The answer is an operational overview rather than a guide to pricing or risk controls. Execution exposure depends on model response time, network latency, and venue reaction time, and venue capabilities vary.

Key ideas

  • Last-look market making lets the market maker reject incoming orders against indicative quotes.
  • In no-last-look making, the market maker posts orders and bears execution risk until cancellation.
  • A single venue API may support both aggressive orders and passive resting orders.
  • Quote updates rely on canceling and replacing resting orders.
  • Latency and venue design affect the market maker’s exposure.

Tags

ForexMarket makingExecutionMarket microstructure
Full text
# Fx Firm market making


# Fx Firm market making












I've been doing market making on forex using the last look feature so far. Now we are moving to do on firm making, but I'm kind of lost.

To do firm making we need to post resting orders (currenex or integral), how does it work exactly? Anyone with experience in this area? Any additional information?

## Answer by Nonefaster (score 3)

https://quant.stackexchange.com/a/22684

Whereas when you marketmake on a last-look basis: - You, the marketmaker, are sending indicative prices to the ECN - The ECN sends orders to you and is at risk (since you have the option to reject, hopefully rarely)

When you marketmake on a no-last-look (NLL) basis: - the ECN is sending indicative prices - You, the marketmaker, send orders to the ECN and you are at risk unless you cancel such orders (and your ability to do so depends on the reaction time of your model, latency between you and the ECN and the ECN reaction time).

Some ECNs provide only one API both for taking and NLL marketmaking. On those you are using their standard API that allows aggressive orders (IOCs) and passive, resting orders (e.g. GTCs). You, as an NLL marketmaker are just using the GTC order types and sending cancels every time you wish to change or cancel your price.

Other ECNs do provide a separate API for NLL marketmaking, a significant feature being that you will not match with other marketmakers. If you contact me directly (my contacts should be visible in my profile) I can explain which are which.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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