screening rent

The return a market maker earns by carrying the predictably mispriced side of state-correlated flow to settlement, rather than by collecting the spread. It compensates the maker for declining trades with anyone informed — quoted as a refusal band wider than the classic bid-ask spread — and shows up as profit booked at resolution rather than on round trips.

Cluster: Liquidity & Trading

Related Concepts

• market making — Continuously quoting bid and ask prices to facilitate trading, earning the spread while managing inventory risk.
• bid-ask spread — The difference between the highest price a buyer will pay and the lowest price a seller will accept, representing the cost of immediacy for traders.
• adverse selection — Risk that counterparties trade because they have superior information, causing losses for the market maker.
• AMM (automated market maker) — A smart contract or algorithm that provides liquidity and prices trades automatically based on a fixed mathematical formula, eliminating the need for traditional order books and designated counterparties.

Articles about screening rent

• Nobody Is Paying for Good Forecasts on Purpose by Marx Zang; Gabriel P. Andrade