Inventory Recalibration in crypto trading denotes the automated, dynamic adjustment of an institutional trader’s or market maker’s asset holdings to maintain specific risk exposures, target inventory levels, or capital allocations. It is a continuous portfolio balancing act.
Mechanism
This process involves real-time monitoring of an entity’s crypto asset balances, current market prices, and associated risk metrics, such as delta for options or overall portfolio value at risk. Algorithms, often integrated with risk management systems, automatically initiate trades to buy or sell assets, bringing the portfolio back into alignment with predefined parameters or desired neutrality.
Methodology
The strategic objective is to optimize capital utilization, manage market risk effectively, and sustain continuous liquidity provision, particularly for firms engaged in crypto market making or institutional options trading. Regular and rapid recalibration ensures that the trading desk operates within its risk limits, reacting to market volatility or executed trades to maintain a balanced and efficient asset position.
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