easy · Market Microstructure adverse-selection
What is 'Adverse Selection' in the context of market making?
- The practice of screening for and only selecting the least volatile stocks to make a market in.
- The tendency for a dealer to trade with counterparties who have better information than they do.
- The risk that a dealer holding inventory will be unable to locate a willing buyer or seller in time.
- A situation in which a trader's order gets misrouted and executed on the wrong exchange venue.
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More Market Microstructure adverse-selection practice
- To protect against 'adverse selection,' what is the most likely response from the dealer?
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