Sales & trading · Market making

Quote the bond. Try not to get picked off.

You run the book in Ridgeline Industries 5.25% 2031, a BBB corporate bond quoted in price. Clients ask for a two-way market; you show a bid and an offer. Win the trade and you earn the spread. Then you own the risk, and some of those clients know where the price is going.

Desk

Market

Shot clock — clients wait 10 seconds for a price

24 client requests. Set a width (your bid-offer) and a skew (lean both prices up or down), then send.
Clients trade with you only if you beat the street. Informed clients trade only when your price is about to be wrong.
Inventory is marked to fair value every request. Hedge with other dealers at a cost; breach the limit and risk cuts you at a penalty.
Score = net P&L in $k, less a charge for the inventory risk you carried. Beat the autopilot that just matches the street.

Keyboard: ↑/↓ width · ←/→ skew · Enter send · P pass · H hedge · F flatten

How it works in real life

What the game simplifies — and what it doesn't

The spread is pay for taking risk

A market maker buys when clients sell and sells when they buy, then sits on the position until offsetting flow turns up. The bid-offer is the pay for warehousing that risk. In corporate bonds most client business now arrives as electronic requests-for-quote: the client asks a handful of dealers at once, trades with the best price, and the winner is usually told the cover — the second-best price.

Some clients know more than you

If every client traded at random, a dealer could quote almost flat and still earn. Some don't: they trade just before news or a big move, and you only find out from the markout — where the price went in the minutes after the trade. Desks track markouts by client and tier their pricing; the classic models (Glosten–Milgrom, Kyle) show the spread has to cover the losses to informed flow.

Skew before you hedge

When long, a dealer shades both prices down: the offer becomes the street's best, so buyers come to you, and the bid falls out of the running, so sellers go elsewhere. Inventory-pricing models (Ho–Stoll, Avellaneda–Stoikov) formalise this — the more risk and volatility, the harder you lean. Hedging through inter-dealer brokers, the CDS index or rate futures is immediate but costs a spread, and in real life the hedge is rarely the same bond, so some basis risk remains.

Limits are not optional

Desks run under sensitivity limits (DV01 for rates, CS01 for credit spread), VaR and stop-loss triggers. A breach goes to risk management and gets cut, often at a poor price. In the US, the Volcker rule's market-making exemption also expects inventory to track reasonably expected client demand — a dealer is not meant to be running a prop book.

Simplified on purpose: one bond, whole-million tickets, no coupon carry or funding cost, and a fair value that exists even though you never see it. The risk charge on your score stands in for the capital and VaR a real desk is charged for the inventory it holds. Real desks, sizes and spreads vary.