Adverse Selection and Markouts
Being a market maker isn’t for the faint of heart. Every quote you place is at risk of being picked off if you aren’t careful. In this article, I cover the concept of adverse selection, as well as how markouts can be used to measure it.
Summary
Market makers face significant risks from adverse selection, which can lead to losses if not managed properly. This piece discusses the concept of adverse selection and introduces markouts as a tool for measuring its impact in trading.
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