Skew Adjustment

Skew adjustment is the process of modifying quote prices to encourage or discourage trading on one side of the order book. When a market maker accumulates too much inventory of an asset, they will "skew" their quotes downward to make it more attractive for others to buy the asset from them and less attractive to sell it to them.

This helps the market maker rebalance their inventory back to a neutral state without needing to aggressively cross the spread. In cryptocurrency markets, where price action can be extremely rapid, skew adjustment must be automated and highly responsive.

If the skew is too aggressive, it can signal to other traders that the market maker is desperate to offload inventory, which may lead to predatory behavior. If the skew is too slow, the market maker remains exposed to inventory risk for longer than necessary.

It is a subtle art of balancing risk management with the need to remain competitive in the order book.