SMA-Anchored Spread Quoting with Inventory Limits

Summary

This market-making example sets a simple moving average as a reference price and places a notional buy level below it and sell level above it using a configured spread and price offset. It buys when the close reaches the buy level, provided inventory remains below a limit, and sells when the close reaches the sell level while inventory is positive. The chart displays the reference and quote levels alongside a visual indication of inventory.

The document explains the intended appeal of earning spread in quieter markets while limiting accumulated inventory. It also identifies major risks: sustained price moves can leave inventory exposed, and slippage, fees, market impact, and parameter choices can erase apparent spread gains. No backtest settings or performance evidence are supplied. The included example is simplified: its inventory counter and opposing strategy orders do not demonstrate a complete live quoting system, and SMA-based quote levels do not account for order book depth or queue position. The text recommends volatility-aware spreads, stronger inventory controls, and execution-cost analysis.

Key ideas

• A simple moving average serves as the reference for buy and sell quote levels.
• The strategy buys below the reference and sells above it, subject to an inventory limit.
• Inventory constraints aim to reduce exposure when trading becomes one-sided.
• Trend moves, execution costs, and market impact can overwhelm spread income.
• The example is simplified and provides no evidence of live or backtested profitability.

Tags

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