“Market makers will always provide liquidity, no matter what”
On top of that, you need a robust algorithm and trading platform, which requires strong programmers and IT developers. As technology has advanced so has the ‘algo’ factor and threat from high frequency traders also increased.
“When the markets are moving really fast, you don’t want other people kidnapping you,” Viger said. “At the end of the day, you provide a service – you are in the market by quoting offers and offers on 800 products. If you try to do this and you don’t have a strong system, when the markets move quickly other people will catch you, whether they are high frequency traders or others who have more systems. fast or better. It’s never a good thing when market makers start to clash against each other!
What happens, however, when the market collapses? What then does a market maker do, when everything around them seems to be hitting the fan?
The simple answer is: the same as before – continue to provide liquidity at the price it’s worth, while managing risk. That could include pricing a half-penny or an off-standard penny as a buffer for volatility, but otherwise, Viger said, it doesn’t matter if the market is down 5% or up 10%. %.
“Whether the market is going down, big or not, our programs operate at the same spreads, assuming we get all the right data and everything. This week is a good example [when the US market was down 4%]; we have the same market share that we have always had and we quote 800 products in Canada. Market makers will always be in the market to provide liquidity no matter what.