Definition
Market making is the continuous posting of two-sided quotes (a bid and an offer) in a market, earning the bid-ask spread as profit while providing liquidity to other participants. Professional market makers manage inventory, volatility exposure, and adverse-selection risk dynamically, adjusting quotes based on order flow, volatility, and position. In digital asset markets, market making spans centralized exchanges, decentralized venues, and OTC channels, with the largest firms operating across dozens of venues simultaneously and running billions of dollars in notional positions.
Example
A market maker posts a 0.05% two-sided quote on BTC/USDT across five exchanges. As inventory accumulates long, the algorithm skews the quotes to favor selling (offering slightly tighter and bidding slightly wider) to rebalance toward a target inventory position.
How Liquid Mercury Handles This
Mercury Pro includes a Market Making algorithm with configurable spread and inventory parameters, kill switches, and real-time venue health monitoring, integrated with the SOR engine for cross-venue quoting.