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Easy · Market Making & Trading Games · Multiple choice · ~4 min · #22

Why Widen Your Spread?

You make markets in a stock. You learn that a larger fraction of incoming orders now come from traders with short-term information about the price. Holding everything else fixed, which of the following are appropriate responses? Select all that apply.

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Worked solution

Give the problem an honest attempt first, then reveal the full explanation.

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Concepts

Adverse selection (Glosten–Milgrom)Quote sizing

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