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making 2 sided markets

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Trading Experience: Intermediate
Platform: Other
Favorite Futures: ES, YM, 6E
Posts: 2,666 since Feb 2013
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Jamie818 View Post
Hello futures io gang, I have a question regarding market making that perhaps someone could explain: how exactly in the most basic sense do you make money doing this? I have read countless times that MM's profit from the bid ask spread, and the larger that spread the better their return. I read in a congressional paper on HFT trading as a footnote that : "market makers buy on the ask and sell on the bid" but this means they buy high and sell low and make money? Clearly I am missing something here. Thanks to anyone who can help me or point me to an enlightening resource on this topic.

What is unclear about that?

If you buy the ES at 2387.5 and sell it at 2387.75, your profit is $12.5 less commissions (near 0 because MMs regularly
are members of the respective exchanges). In stocks, the spread often is larger than 1 tick, so the net profits are much higher if it is you who gets the trade.

Why HFT? - The more often you do these trades, the more you earn.
What's the precondition? - Regulatory issues aside, if you have got some 7- to 9-figure bucks left, feel free to
invest in HFT, exchange seats, colocation etc. and play heads-up with the big guys

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