Market Making Presentation 🌱

How Does a Market Work

Bid and Ask Price Plot

tsla.png

Bid and Ask Price Plot

width:7cm

Bid and Ask Price Plot

width:20cm

There are 2 types of orders

  • limit order
  • market order

Why can I execute trade right away

  • market makers like Virtu can arbitrage by placing orders on both sides of market
  • also they are paid by exchanges to provide liquidity (meaning they are paid to put their limit orders)

Why is robinhood trading free

  • If you place limit order you are being paid to place your order by exchange, so you get to place it for free on robinhood
  • if you place market order, they sell that order to the market makers:
    • in return marker makers get an order crossing the spread as well as information quicker than anyone else what direcation the order is coming from
  • Slippage: difference in best market price and what you actually pay:
    • delay in trade execution

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