Quant Memo
Market Making/●●●●

Why you keep only part of the spread you quote

Asked at Jane Street

You sell 1,0001{,}000 shares at your offer of 50.0550.05 when the mid is 50.0050.00, a 55-cent quoted half-spread. Five minutes later, the mid has moved to 50.0450.04: the trade "predicted" the move, because the buyer knew something.

Of your 55-cent quoted half-spread, how much did you actually keep? Decompose it into realized spread and price impact.

Your answer

More Market Making questions