Market Making Review Sheet
Market making review sheet for fair value, spread, inventory, adverse selection, quote updates, risk limits, and common mistakes.
Candidates consolidating market-making fundamentals.
Fair value
State the midpoint estimate and why it is reasonable before adding spread or skew.
Spread
Choose a spread that reflects uncertainty, adverse selection risk, and how competitive you want the quote to be.
Inventory
Track whether you are long, short, or flat. Adjust quotes when position risk changes.
Adverse selection
Ask why the counterparty wants to trade. If flow may be informed, update fair value or widen the spread.
Risk limits
Do not maximize one-trade edge while ignoring inventory caps, loss limits, drawdown, or position size.
Final checks
Before each quote, check midpoint, bid, ask, spread, inventory, and what you will do if the quote is hit.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.