The Market Maker's Dilemma: Navigating the Fill Probability vs. Post-Fill Returns Trade-Off

2025/02/25 by Jakob Albers, Mihai Cucuringu, Albers, Jakob +5 · 1 voice
Computer Science · Economics, Econometrics and Finance · #Blockchain Technology Applications and Security #Complex Systems and Time Series Analysis #Financial Markets and Investment Strategies #q-fin.TR

paper · pdf · doi:10.48550/arxiv.2502.18625

arxiv published 2025/02/25 · arxiv updated 2025/11/23

Abstract

Using data from a live trading experiment on the Binance Bitcoin perpetual, we examine the effects of (i) basic order book mechanics and (ii) the persistence of price changes from immediate to short timescales, revealing the interplay between returns, queue sizes, and orders' queue positions. We document a fundamental trade-off: a negative correlation between maker fill likelihood and post-fill returns. This dictates that viable maker strategies often require a contrarian approach, counter-trading the prevailing order book imbalance. These dynamics render commonly-cited strategies highly unprofitable, leading us to model `Reversals': situations where a contrarian maker strategy at the touch proves effective.

Cited by

• Public Trader Identity: Adverse Selection and Return Predictability

Discussions

• Jakob Albers, Mihai Cucuringu, Sam Howison, Alexander Y. Shestopaloff: To Make, or to Take, That Is the Question: Impact of LOB Mechanics on Natural Trading Strategies https://arxiv.org/abs/2502.18625 [bsky, 1 points, 1 comments]

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