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title: Slickorps Dissects Market-Making Myths

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# Slickorps Dissects Market-Making Myths: Why the Spread Is Not the Edge, and Why Fill Probability Determines the Outcome?

![image](https://hackmd.io/_uploads/Hy2ido9XZe.png)

If the market is imagined as a continuously vibrating machine, the market maker is not trying to predict direction, but to "monetise" that vibration through two-sided quotes. This week, Slickorps Ventures seeks to clarify a frequently misunderstood fact: the essence of market making is not how wide the spread appears, but whether inventory and price risk can be kept from spiralling out of control amid constantly shifting order flow. Classical market-making models typically begin with the random fluctuation of a mid-price St and incorporate inventory qt as a state variable into the notion of a "reservation price", for example,

![image](https://hackmd.io/_uploads/ryV3dsc7-l.png)

The intuition is simple. The more unbalanced the inventory and the closer the system moves toward settlement, the more aggressively quotes must push the strategy back toward a safe zone. Internally, Slickorps Quant refers to this as a "self-calibration mechanism". The first principle of market making is not to outperform others, but to avoid being undone by ones own inventory dynamics.

## Trading Efficiency Has Never Meant Being Faster Alone: The Decisive Factor Is Estimating "Fill Probability" More Accurately

For leading quantitative firms, the hardest work in improving market-making efficiency is rarely shaving a few more microseconds off execution speed. Instead, the focus lies on estimating more reliably "whether a quote at a given price level will actually trade". Slickorps Ventures observes that market-making profit is the spread multiplied by execution, but execution itself is a probability that distorts with market conditions. Many models describe order flow through arrival intensity, often expressed as a function of distance from the reservation price, for example,

![image](https://hackmd.io/_uploads/SJradj5XWl.png)

Here, delta represents how far a quote deviates from the reservation price. The further away it sits, the thinner order arrival becomes. In practice, what is labelled "more efficient market making" usually reflects an improved ability to estimate and update parameters such as A and k across different book depths, information regimes, and counterparty quality. Beyond this, queue position determines priority at a given price level. Identical quotes with different queue ranks can lead to entirely different execution outcomes. Slickorps conclusion is that the upper bound of market-making efficiency is set by the ability to model and calibrate "fill probability", not by slogans or a single speed metric.

## When Closed-Form Solutions Meet Regime Shifts: Machine Market Making Moves Toward "Learnable Control"

Real markets do not adhere indefinitely to a fixed set of parameters. Liquidity can thin abruptly, spreads can widen without warning, and order flow can suddenly turn toxic. Under such conditions, reliance on closed-form solutions becomes fragile. As a result, recent research and industry practice increasingly frame market making as a dynamic control problem, allowing strategies to learn new quoting behaviours as conditions change. A common objective function places profit and inventory penalties on the same balance sheet.

![image](https://hackmd.io/_uploads/HkfCuoqXbg.png)

The message is intuitive. Every unit of spread earned must compensate for the deformation risk carried by inventory. Slickorps Quant places particular emphasis on the engineering implication: learning-based market making depends on interactive order-book simulation. Without it, a model cannot train on counterfactuals such as "what if I had quoted differently at that moment". In this sense, market making is shifting from "solving a problem" to "maintaining a sustainable adaptive system", a transition that aligns closely with Slickorps infrastructure-oriented thinking.

## The New Threshold After Scaling: Why Isolation, Auditability, and Explainability Matter as Much as Models

Once market making scales across assets, venues, and regions, efficiency no longer depends solely on strategy-level optimality. It also hinges on whether the system remains controllable and whether boundaries are clearly defined. Slickorps Ventures long-term view is that the closer a participant operates to the core of the market, the more necessary it becomes to account for both the "model chain" and the "governance chain" within the cost function. Data permissions, information barriers, audit trails, and accountability for parameter changes all constrain the feasible strategy space. This consideration is especially critical in emerging markets. Infrastructure upgrades bring faster matching engines and denser algorithmic participation, but if regulatory frameworks, clearing mechanisms, and data regimes fail to evolve in parallel, tail risks will surface more sharply. Slickorps therefore treats market making as "a system engineering problem of sustainable execution". It requires sensitivity to risk in pricing, and equal sensitivity to boundaries in process. Only under these conditions can market-making capability evolve from a temporary advantage into durable competitiveness across cycles.
