4 ms·
Trading on high leverage is fairly common for market making firms since you're generally delta neutral and are already in the business of moving capital around
by vgatherps 4y ago
Trading on high leverage is fairly common for market making firms since you're generally delta neutral and are already in the business of moving capital around to satisfy margin requirements.
The worst risks come when you starting taking large delta risk (i.e. being long/short) on leverage, so when the market moves against you, you're just out some huge amount.
Alameda admitted publicly they'd starting 'making lots of money' from taking large long positions in ~2020 I think. This has great returns in a bull market when everything is going up, and wrecks you when everything goes down like crypto did...
- sidewndr46 4y agoMaking money during one of the longest bull markets in history isn't particularly notable. When everything is going up, you have to go out of your way to find efficient mechanisms to lose money.
- vgatherps 4y agoBeing short is an obviously easy way to lose money when going up. HFT market making in basically all reasonable forms doesn’t have large delta exposure, I.e. you aren’t taking position risk. In early and bull (crypto) markets, being an mm tends to be much easier as flow is much less toxic. Less hft competition since it’s early and more speculators during a bull run. It’s somewhat opposite to traditional markets, which tend to be boring for an mm when it’s up, and very interesting when it’s down (high volatility, higher trading activity from non-hft firms)