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The needs of Market Making Strategies
According to a research in Nebraska, Over the past few years, the rapid growth and success of automated techniques for e-commerce have resulted in their wide adoption in various domains beyond traditional B2B and B2C commodity markets.
As the role of the market-makers grows, the need for better understanding of the impact of the market-makers in the market increases as well.
Finally, the reinforcement learning strategy fulfills its tasks of both controlling the spread and maximizing utility.
History of market making
The automation of a market-makers’s functions was suggested more than three decades ago. Previously, several theoretical approaches, albeit with certainsimplifying assumptions, have been proposed to understand the effects of market makers on financial markets.
Designing a strategy based on :
This is the first step in performing a comparison of multiple market-maker strategies. In the future, we wish to explore different extensions of this work. First of all, we would like to propose and perform comparisons of other market-maker strategies such as using a minimax regret algorithm for price adjustments by the market-maker. Secondly, we would like to study the performance of the market makers with a more complex behavior, such as dynamically switching strategies based on past performance. This way, a better balance of maintaining marketquality and maximizing market-maker utilities may be obtained. And lastly, we would like to add various behavioral attributes to the market-maker model such as different risk attributes and making untruthful price revelations through bluffing for improving profits.
Locational Arbitrage. Say we have two banks, East and West. Ignoring bid/ask spreads, East quotes USD 1.50/GBP, and West quotes USD 1.40/GBP. We can then simultaneously buy GBP at West, and sell at East, and earn USD 0.10 for every GBP traded in the arbitrage. Note that in this presentation we will be using the following common abbreviations ... It is also known forex arbitrage (or broker arbitrage). The trader would buy on the lower quoted ask price and sell the higher quoted bid price. Buy order P/L: 2 Pips. Sell order P/L: +7 Pips. The above table shows a very basic arbitrage strategy involving two broker feeds and buying the lower Ask and selling the higher Bid prices. Notice that ... Forex Arbitrage is an arbitrage among real rates and synthetic cross rates in different local markets. For example, suppose a trader has accounts with forex brokers in New York, Tokyo, and London. As far as local quotes are determined by local players, there are sometimes arbitrage opportunities among different locations. In our case the real rates are gbp/usd 1.6388 1.6393 (NY), eur/usd 1 ... Triangular Arbitrage Opportunities in the Real World. Triangular arbitrage opportunities rarely exist in the real world. This can be explained by the nature of foreign currency exchange markets. Forex markets are extremely competitive with a large number of players, such as individual and institutional traders. The competition in the markets ... Multiscale cross--correlations and triangular arbitrage opportunities in the Forex. Preprint (PDF Available) · June 2019 with 292 Reads How we measure 'reads' A 'read' is counted each time ... The bid-ask spread (informally referred to as the buy-sell spread) is the difference between the price a dealer will buy and sell a currency. However, the spread, or the difference, between the ... Imad Moosa shows that the effect of triangular arbitrage in the forward market is similar to the combined effect of triangular arbitrage in the spot market and covered interest arbitrage. He also ... Triangular arbitrage with bid and ask spread Example 1: You found following FX rate quotation from three different locations. BID ASK 1.7019USD/GBP 1.7036 USD/GBP 0.9850 USD/EUR 0.9867 USD/EUR 1.7200 EUR/GBP 1.7300 EUR/GBP Find whether there is any opportunity for making profit on arbitrage. Step 1: Determine whether the given quotes are direct quotes or indirect quotes. Term currency of ... t,ask and Bank B will reduce S B t,bid, say to 1.530 USD/GBP and 1.525 USD/GBP, ... Triangular arbitrage is a process where two related goods set a third price. In the FX Market, triangular arbitrage sets FX cross rates. Cross rates are exchange rates that do not involve the USD. Most currencies are quoted against the USD. Thus, cross-rates are calculated from USD quotations –i.e., the most ... Triangular arbitrage bid-ask spread. In practice however, it is not possible to just trade at the midquote price. Investors that want to buy or sell a currency for another need to pay the ask price in case of a buy order, or will only receive the bid price in case of a sell. The difference between the ask and bid price is called the bid-ask spread and serves as a compensation for liquidity ...
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