Market Maker Fill Probability Versus Post-Fill Returns

Summary

The document examines the trade-off between the chance that a maker order fills and the return after it fills. Its evidence comes from a live trading experiment on the Binance Bitcoin perpetual, where the analysis considers order-book mechanics, queue size and position, and the persistence of price changes from immediate to short time horizons. It reports a negative relationship between fill likelihood and post-fill returns: orders that are easier to fill tend to have less favorable subsequent returns.

This trade-off suggests that workable maker strategies may need to take the contrarian side of prevailing order-book imbalance. The authors say commonly cited strategies perform poorly in the studied setting and model reversals in which contrarian orders at the touch can be effective. The evidence is tied to one instrument and experiment; the document does not provide sample details, quantitative performance measures, or proof that the approach generalizes to other markets or conditions.

Key ideas

• The live experiment studies maker orders on a Bitcoin perpetual contract using queue and price-change information.
• Fill likelihood is negatively correlated with post-fill returns in the reported analysis.
• Queue size and position help shape the relationship between fills and subsequent returns.
• The findings motivate contrarian maker strategies that trade against prevailing order-book imbalance.
• Contrarian orders at the touch can be effective during modeled reversals, though the evidence is limited to the described setting.

Tags

# The Market Maker's Dilemma: Navigating the Fill Probability vs. Post-Fill Returns Trade-Off


# The Market Maker's Dilemma: Navigating the Fill Probability vs. Post-Fill Returns Trade-Off









Using data from a live trading experiment on the Binance Bitcoin perpetual, we examine the effects of (i) basic order book mechanics and (ii) the persistence of price changes from immediate to short timescales, revealing the interplay between returns, queue sizes, and orders' queue positions. We document a fundamental trade-off: a negative correlation between maker fill likelihood and post-fill returns. This dictates that viable maker strategies often require a contrarian approach, counter-trading the prevailing order book imbalance. These dynamics render commonly-cited strategies highly unprofitable, leading us to model `Reversals': situations where a contrarian maker strategy at the touch proves effective.

Shown in full with attribution under the source's licence. Licence: abstract CC0

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