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What is the distinction here between what you call "order book" markets and "market made markets". Surely anything traded on a central limit order book require

What is the distinction here between what you call "order book" markets and "market made markets". Surely anything traded on a central limit order book requires outstanding limit orders to provide liquidity and therefore all order book markets are "market made"? Or are you working with some specific technical definitions here?

JumpCrisscross 6y ago
> Surely anything traded on a central limit order book requires outstanding limit orders to provide liquidity and therefore all order book markets are "market made"? No. Some markets, e.g. the NYSE, have specialists [1]. They support the market even when there is nobody else on one side of the order book. When companies list on the NYSE, they are explicitly asking for a group of market makers to be able to naked short their shares as a stabiliser. Many longer-term investors, similarly, explicitly express preference for these protections. Other markets, like dark pools, are completely counterparty to counterparty. Still others operate around dealers (who are similar to but distinct from specialists). There is a lot of variation in and competition around market structure. [1] https://www.investopedia.com/ask/answers/128.asp https://www.investopedia.com/ask/answers/128.asp
- scaramanga 6y ago
  Ah okay thanks. I always just considered professional market makers (as described there) as just another kind of participant or counter-party who just has a particular strategy and maybe takes advantage of volume rebates or similar (but basically transparent) incentives to act as a liquidity provider. But I see that you're making a comparison about bitcoin markets where that kind of structure is mostly not there. That reminds me. For anyone interested, there's an interview with a HFT market-making guy here who set up the LXDX exchange for crypto derivatives and who talks a bit about the differences in market microstructure: https://www.youtube.com/watch?v=xkhLZXLb8mU https://www.youtube.com/watch?v=xkhLZXLb8mU

JumpCrisscross 6y ago

> Surely anything traded on a central limit order book requires outstanding limit orders to provide liquidity and therefore all order book markets are "market made"? No. Some markets, e.g. the NYSE, have specialists [1]. They support the market even when there is nobody else on one side of the order book. When companies list on the NYSE, they are explicitly asking for a group of market makers to be able to naked short their shares as a stabiliser. Many longer-term investors, similarly, explicitly express preference for these protections. Other markets, like dark pools, are completely counterparty to counterparty. Still others operate around dealers (who are similar to but distinct from specialists). There is a lot of variation in and competition around market structure. [1] https://www.investopedia.com/ask/answers/128.asp https://www.investopedia.com/ask/answers/128.asp

scaramanga 6y ago
Ah okay thanks. I always just considered professional market makers (as described there) as just another kind of participant or counter-party who just has a particular strategy and maybe takes advantage of volume rebates or similar (but basically transparent) incentives to act as a liquidity provider. But I see that you're making a comparison about bitcoin markets where that kind of structure is mostly not there. That reminds me. For anyone interested, there's an interview with a HFT market-making guy here who set up the LXDX exchange for crypto derivatives and who talks a bit about the differences in market microstructure: https://www.youtube.com/watch?v=xkhLZXLb8mU https://www.youtube.com/watch?v=xkhLZXLb8mU