#marketmaker

➡️ Quantitative Finance from Scratch, part 47: What does a market maker actually do? A market maker is a trading firm that always provides two prices for a stock: the ask (higher, what you pay when you buy) and the bid (lower, what you get when you sell). When you trade as a retail investor, the other side is usually a market maker. It stands in the middle, so someone is always there to trade with you. This is called providing liquidity. In return, it earns the spread (spread = ask − bid). Buy at 99.98 dollars, sell at 100.02 dollars, and it earns four cents per share. That sounds tiny, but it repeats all day across many stocks. The job comes with two big risks. Inventory: when many people sell at once, the market maker ends up holding a lot of stock, and if the price then falls, it loses money (P&L = cash + inventory × fair price). Informed traders: someone who hears news first sells to the market maker right before the price drops. A good market maker adjusts its two prices all day, moving them with its inventory and widening the gap when the risk grows. On many exchanges, official market makers promise to quote within a maximum spread and pay lower fees in return. The code (mm_reel.py, 16 lines of plain Python without packages) is general on purpose: two quotes around a mid price, what happens when a customer buys or sells, the profit and loss, and a quote shifted with the inventory. If you want to go deeper, check out the full course I built: quantfinancetogo.com #quantfinance #marketmaking #marketmaker #finance #python Education only, not financial advice.