Nimble Market-Maker Alpha
introducing a new series
For the first time in history, the standards for profitable electronic trading is lower than before. With the crypto industry and insurgence of financial trading applications, you can source for asset liquidity from a sprawl of platforms from the highly degenerate to mature.
This fragmented liquidity phenomenon means that sub-JaneStreet talent trading firms and small units can find their niche in high sharpe strategies in lower capacity markets.
This is apparent in the proliferation of boutique market making firms and prop trading - lower competition from tripartite consequence of lessened infrastructural barrier (e.g. exchange colo and data costs), less efficient markets (CEX/DEX AMM/CLOB ecosystem fragmentation and idiosyncrasies) and higher baseline risk premium (as evidenced by returns from premia strats such as cash-carry, momentum, lending yield).
As an extension to small firms, even sized-one teams (solo quants) has become possible. To the best of my knowledge, this was impossible or astonishingly rare (except low frequency CTAs, systematic ‘quantamental’ funds) before crypto technology, mostly because of the crushing level of competition and the nature of quantitative alpha - the demand being that edge be automated over a wide universe of assets with high connectivity and low tolerance for error, or that edge was a consequence of client relationships. This is as opposed to discretionary funds where labour can be concentrated on a small universe of opportunities and profit-consequential decision making is infrequent.
Whether this trend will continue or liquidity will consolidate remains to be seen. I don’t worry about what the future looks like, though -
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” Warren Buffett
The Nimble Market-Maker posts will discuss important techniques for arbitrageurs and maker makers in pseudo-competitive trading environments where FPGA and a VIP access are not required. In fact, we will focus more on real case studies and techniques to edge out your competition in today’s fragmented market.
It will sort of be like the ‘Small Trader Alpha’ series from
- there will be some parallels as well as orthogonal discussions.The tallest dwarf takes (some of) the prize. Stay nimble!
