Understanding the behavior of our trading algorithms
In this section, we will discuss some additional details about the behavior and motivation behind the two trading strategies we will build in this chapter – the market making trading strategy and the liquidity taking trading strategy. With the use of a hypothetical example for each strategy, we will also try to understand the strategy order flow mechanics and try to further our understanding when we implement these trading strategies in our C++ system, towards the end of this chapter.
Understanding the market making trading algorithm
The market making trading strategies seek to make profits by seeking to capture the spread, which just means buying at the best bid price in the market passively and quickly selling at the best ask price in the market passively (or selling first and buying after). The market making strategies, profitability depends on the spread of the trading instrument, how many buy and sell trades the...
