Formalising common approaches to trading - page 27
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Interested in the specific rules of their game, it is unclear how they make money by providing liquidity and narrowing the spread,
What is the reason for widening the spread? As mentioned above, due to participants' uncertainty about a fair price, it contributes to a drop in liquidity on an instrument. Passive buyers (sellers) do not want to place orders higher than the bid (cheaper than the ask). And aggressive buyers (sellers) do not want to "beat" the ask, too expensive (at the bid, too cheap). So trade slows down and liquidity falls.
Of course MM does not benefit from it, because it is easier for him to "Pipsize", i.e. it is easier to make a small deal, but very often (minimum spread), than to make a larger one in pips, but very long term (large spread). Plus the administration may give him a hard time for inactivity. But this is not the main reason for minimizing the spread. There are traders in the market who have very low transaction costs (comparable to MM's costs), then they can raise some money competing with MM, placing their orders within the spread, forcing aggressive players to "hit" their orders. In this case the liquidity increases rapidly, and MM is left idle and without money.
Interested in the percentage of volumes that have been given to MM from the total turnover, etc.
These are all your assumptions, in reality all trades are inverted and equal, on a global level there is no unwillingness to close loss factor.
Of course, this is my own interpretation, what is the "unwillingness to close a loss factor"? - can you put it in a simpler way? is it loss taking? trading without SL?
I wonder what instrument you want to bet on.
Forget about betting.
In general, the topic is a dead end. What is being attempted is to predict a storm in the cup. The main driver of any market movement is exogenous factors, in particular inter-market linkages and the herd effect. In other words, the price does not fall due to the lack of liquidity in the demand at the current level, and certainly not due to the location of limit or market orders but due to the external effect, the flow of liquidity from outside that in its turn affects the balance of forces in the specific market. In general, this is an attempt similar to predicting the market behavior by a technical indicator, though it is obvious that the market moves technical indicators, not vice versa.
Also, not a word has been said about market noise. That said, some understand noise to be an "unrecognised pattern", it is not. If we imagine that there is at least one trader (group of traders) on the market who trades intentionally or not randomly, then we already have a certain amount of noise. The actions of these traders cannot be predicted. They cannot explain themselves why they made a certain deal. There is no regularity between their actions, so there is no tool that can predict this noise. Here I see it all in one pile. There is an attempt to analyze noise, which no matter how you analyze it, it will still be noise.
C-4:
The main driver of any market movement are exogenous factors, in particular intermarket relationships and herd effect.You are right, but in part. To formalise the speculative approach, I think exogenous factors can be neglected as they affect the market more at the investment horizon level. On the speculative horizon, the main driver is the endogenous type of information. And one of the directions of research in the formalization of speculative approaches is the study of three quite formal objects: Market Profile, Level 2 and Lenta. And by them it is possible, indirectly but with sufficient accuracy, to determine the exogenous trends without going into their nature.
If we understood the MM and the crowd, I think we should go further.
It is already 27 pages long and the general approaches to trading are not formalised. Instead it discusses the behaviour of the crowd and the market makers and the reasons that have influenced them. The topic does not correspond to the content.
FAGOTT:
And what exactly is the benefit to society of a profitable trader?
The crowd creates profits for MM, not trends, even if individual elements of the crowd have a lot of money.
Arbitrageurs will write them back with the bad word equity curve.
Wrong.
Because you don't have a proper data source.
1. agree
2. allies (other interests)
3. so who is the crowd - the herd that is skilfully herded into the trend or - revolution! The question is a philosophical one.... Hence the beginning of formalization - the crowd moves or the crowd participates. (I do not want to give examples, because it is useless).
4. mt is enough