Market Maker Skew

Market maker skew refers to the intentional adjustment of quote prices to encourage trades that help balance an inventory position. If a market maker has too much of an asset, they may lower both their bid and ask prices to encourage selling and discourage buying, effectively skewing their quotes.

This technique allows them to manage their inventory risk dynamically without having to exit the market. Skewing is a standard practice in liquidity provision, reflecting the market maker's need to maintain a balanced book while providing continuous service.

It also serves as a signal to other participants, as changes in the skew can indicate the market maker's current inventory state. Understanding skew is important for traders, as it can influence the execution price and the overall availability of liquidity.

It is a subtle but powerful tool that market makers use to balance their operational needs with their role as liquidity providers.