VertoxQuant

VertoxQuant

Share this post

VertoxQuant
VertoxQuant
Market Making - Toxicity and Adverse Selection
Copy link
Facebook
Email
Notes
More

Market Making - Toxicity and Adverse Selection

Measuring and avoiding adverse selection

Vertox's avatar
Vertox
Dec 21, 2024
∙ Paid
5

Share this post

VertoxQuant
VertoxQuant
Market Making - Toxicity and Adverse Selection
Copy link
Facebook
Email
Notes
More
Share

One of the largest, if not THE largest issue that market makers face is adverse selection.

You are providing quotes and there is some trader with more information about future price moves than you.
If he expects price to go up he will fill your quote on the ask side. Price then moves up causing him to make money and you to lose money.

In this article we will go over how you can measure the impact that those informed traders have on you and some ways to avoid toxic flow.


Table of Content

  1. Future Markout PnL

  2. More Alphas

  3. PIN

  4. VPIN

  5. Other measures of Toxicity

  6. Final Remarks

This post is for paid subscribers

Already a paid subscriber? Sign in
© 2025 Vertox
Privacy ∙ Terms ∙ Collection notice
Start writingGet the app
Substack is the home for great culture

Share

Copy link
Facebook
Email
Notes
More