Comparison of different market making strategies for high frequency traders

This paper utilizes agent-based simulation to compare different market making strategies for high frequency traders (HFTs). After proposing a model representing HFTs´ activities in financial market when they act as market makers, we carry out simulations to explore how different quoting strategies affect their profit. The results show that combination of (i) offering prices based on the latest trading price, and (ii) using the information about market volatility and order imbalance, increase market makers´ daily returns. In addition, other scenarios including the competition environment of increased competitors and decreased latencies are incorporated in the model, in order to find out how these factors change the performance of market making strategy.