Market making

Market making versus directional trading

Two accounts can post identical monthly returns while taking completely unrelated risks. The distinction that matters most on a perp venue is whether the account earns from spread and inventory or from being right about direction.

In short

Market makers earn the spread by quoting both sides and manage the inventory they accumulate; directional traders earn from price movement in a chosen direction. Market-making records look smooth with rare sharp losses, directional records look lumpy — and only the second archetype translates cleanly into copied positions.

Two different risk objects

A market maker's risk is inventory: the unwanted position that accumulates when one side of the book keeps trading. Their bad day is a fast one-way market that fills them repeatedly on the losing side before they can hedge or widen.

A directional trader's risk is simply being wrong. The loss is visible in the position from the outset, and it scales with size and leverage rather than with flow.

Market making: many fills, small spread capture, occasional sharp inventory loss.
Directional: fewer fills, results driven by the size and duration of each position.
Their drawdowns are triggered by different market conditions, which is genuine diversification.
Only directional positions mirror into a follower sub-account in a meaningful way.

Why quoting strategies do not copy

Copying a market maker would mean reproducing their quoting behaviour, not their position. Mirroring only the resulting inventory gives you the residual risk without the spread income that compensates for it — the worst half of the trade.

Accounts whose record is dominated by quoting behaviour are therefore identified and excluded from allocation, even when the record itself is excellent.

Telling them apart from public data

Fill patterns are distinctive: near-continuous two-sided fills at tight spreads with small net position drift indicate quoting; clustered one-sided fills that build a position and later unwind it indicate directional trading.

Past performance is not indicative of future results. Perpetual futures are leveraged instruments and carry a substantial risk of loss, including the loss of your entire position.

Questions

Frequently asked

Can a market maker be copied at all?

Not usefully. The income comes from quoting; mirroring only the inventory transfers the risk without the compensation.

Do market makers show high win rates?

Often, yes, with very small average results per fill and rare sharp losses. That profile can look deceptively strong in a naive score.

Is a hybrid account possible?

Yes, and it is common. Where the directional component is separable and dominant, the account can still be a valid candidate.

Why does this matter for diversification?

Because the two archetypes fail under different conditions, mixing them reduces the chance that every position is losing at once.

How is this classified?

From fill cadence, spread capture and net position drift in the public record — no private information is required.

Keep reading

Funding-rate captureThe other low-variance, non-directional archetype.Which strategies copy wellWhich archetypes survive replication.Scoring methodologyHow candidate records are reconstructed and tested.Elite trader leaderboardThe current basket with scores and allocation weights.

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