Re:Zillow lost money because they weren't willing to lose money
by kgwgk on Saturday November 27, 2021 @02:16PM
(#29362599)
> Drift from simultaneity incurs cost and risk. Those costs and risks must be managed.
That’s the point of being a market maker. Managing those costs and risks well enough to make money from the spread.
Re:Zillow lost money because they weren't willing to lose money
by hhmc on Saturday November 27, 2021 @01:59PM
(#29362470)
You can't garauntee your (bid/ask) resting orders are executed against in the same epsilonic time window, nor would you want to. No market making practioners would think in these terms.
Re:Zillow lost money because they weren't willing to lose money
by JumpCrisscross on Saturday November 27, 2021 @07:56PM
(#29365192)
> You can't garauntee your (bid/ask) resting orders are executed against in the same epsilonic time window, nor would you want to
Of course you can. This is the entire thesis with which HFT beat out old-school market makers in securities.
Re:Zillow lost money because they weren't willing to lose money
by hhmc on Saturday November 27, 2021 @08:20PM
(#29365336)
I think you maybe have some misunderstandings around the practicalities limit orders and market microstructure (not withstand some theoretical model of risk free market-making, which has broadly been superseded, if you care about the theory at all).
Re:Zillow lost money because they weren't willing to lose money
by JumpCrisscross on Saturday November 27, 2021 @11:00PM
(#29366064)
> you maybe have some misunderstandings around the practicalities limit orders and market microstructure
Perhaps. I haven’t been on a market-making desk for close to a decade now.
But to correct one misconception in your comment, market makers don’t commonly use limit orders. (You’d submit a quote and try to hit rebates.)
Re:Zillow lost money because they weren't willing to lose money
by kgwgk on Sunday November 28, 2021 @04:34AM
(#29367520)
How are quotes different from limit orders? [Edit: apart from the originator, I mean.]
Re:Zillow lost money because they weren't willing to lose money
by hhmc on Tuesday November 30, 2021 @07:03AM
(#29391232)
> But to correct one misconception in your comment, market makers don’t commonly use limit orders. (You’d submit a quote and try to hit rebates.)
They do in the asset classes I work with, YMMV
That wasn’t claimed. What was said is the archetype is simultaneity. That is 100% accurate for how the term “market maker” has been used, globally, since at least 1999. (Pre-GLB/LTCM and post-ECN, the term was used more broadly.)
Drift from simultaneity incurs cost and risk. Those costs and risks must be managed. If you aren’t thinking in those terms, you aren’t market making.
Zillow’s downfall mirrors that of the money-centre banks in securities dealing post-GLB leading up to the crisis. What does and does not constitute market making, which is risky but less so than leveraged day trading, was a huge area of policy concern. When non MMs think of themselves as market makers, there is a predictable set of risks they get downed by. Zillow, like so many others, fell prey to that misconception. (There is loose analogy in the ABS markets, where banks holding inventory of esoteric products, either badly hedged or hedged with a busted counterparty, got hosed.)