Inventory-Skewed Quoting for a High-Frequency Market Maker

Summary

The example outlines a limit-order market-making loop. It computes a midpoint from the best bid and ask, adjusts a reservation price using a forecast and an inventory-related risk term, then places bid and ask quotes around that price. It rounds quotes to valid ticks, sizes orders using a notional target, and checks a maximum notional position before deciding whether to maintain or cancel orders. The loop also waits for order responses and removes inactive orders.

The example is a framework rather than a complete strategy: its forecast and volatility inputs are set to zero, while several model coefficients are fixed placeholders. It notes that multiple resting orders could extend the approach toward grid trading, but would require more advanced order-book management. The accompanying backtest setup specifies latency data, a queue model, fee assumptions that include a maker rebate, and exchange fill behavior. Results are not reported, so profitability and robustness cannot be inferred from the code alone.

Key ideas

• The quoting logic centers on the midpoint and adjusts a reservation price for forecasts and inventory risk.
• Bid and ask orders are placed around the reservation price using a configurable half-spread.
• Position limits can cause quotes on the risk-increasing side to be withheld or canceled.
• The backtest configuration includes order latency, queue modeling, fees, and exchange fill assumptions.
• Forecast and volatility inputs are placeholders, and the document provides no performance results.

Tags

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