This is continuation of my blog series Algorithmic Trading 101: From Beginner to Pro
Algorithmic market making is a trading strategy where market makers use computer algorithms to provide liquidity to financial markets. The market makers earn a profit by buying and selling securities at bid and ask prices, and by earning the difference between the bid and ask prices. Algorithmic market making is used in a variety of markets, including equities, futures, options, and currencies.
The goal of algorithmic market making is to buy low and sell high, which means that market makers want to buy securities at the lowest possible price and sell them at the highest possible price. Market makers also want to provide liquidity to the market by buying securities when there are more sellers than buyers, and selling securities when there are more buyers than sellers.
One of the most popular algorithmic market making strategies is the mean reversion strategy. In this strategy, market makers buy securities when the price is below its mean value, and sell securities when the price is above its mean value. This strategy works on the assumption that prices tend to revert to their mean value over time.
