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Why Market-Making Funds May Become Stand-Alone Firms

Article Quant Q&A · Author: mohsen heidari
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Summary

The document explains why a fund that specializes in market making may later operate as an independent business. It identifies Citadel as an example of a firm engaged in market making and describes the activity as potentially profitable on a risk-adjusted basis while requiring relatively little capital.

The proposed transition is that owners may return outside investors’ capital after building profits, then continue market making as a stand-alone firm. The discussion is brief and offers no detailed evidence, comparison of business structures, or analysis of the risks and costs involved. Its explanation is a general observation rather than a guide to evaluating a particular fund.

Key ideas

  • Market making can be conducted by firms that began as funds.
  • The discussion names Citadel as an example of a market-making firm.
  • Market making is described as relatively low in capital requirements and potentially attractive on a risk-adjusted basis.
  • Fund owners may return outside capital and continue operating as a stand-alone business.

Tags

Market makingRisk management
Full text
# Is there any funds that do market making?


# Is there any funds that do market making?












In spite of banks, market making firms, brokers is there any funds that specially do market making?

## Answer by Chris (score 2)

https://quant.stackexchange.com/a/46614

Of course, Citadel as a primary example.

## Answer by Chris Taylor (score 1)

https://quant.stackexchange.com/a/46612

Yes, although they might not remain funds for very long. Market making is not a particularly capital intensive activity, and it can be quite profitable (or at least, rather risk-adjusted returns are high) so once the fund owners have accumulated some profit they will be incentivised to return outside capital and operate as a stand-alone business.

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.