Market Making

Market making involves placing limit orders on both sides of a market — offering to buy slightly below the current price and sell slightly above. You profit from the spread when both orders fill. This strategy works best in liquid markets with consistent trading activity.

The key risk is adverse selection: when informed traders trade against your orders because they have better information about the likely outcome. Manage this risk by widening spreads in volatile or low-information markets, and by keeping position sizes small. Market making requires active management and is best suited for experienced traders who understand order book dynamics.