What is Inventory Risk?
Hello again Hummingbot community!
Today we will start to talk about what I consider the most important factor that is part of all types of trading operations: risk and risk management.
As one of the biggest investors of our time once said:
"Risk comes from not knowing what you're doing." ~ Warren Buffett
All kinds of financial operations have varying degrees of risk, and market making is no different.
While it seems more exciting to imagine and project future gains and fantasize about being the next Warren Buffet, the reality and less glamorous part of investing, and arguably the most important part, is trying to figure out what can go wrong and how to mitigate losses that can result.
There is a lot to cover about risk and risk management, but today we will focus on one major risk related to market making: inventory risk.
Here is what we’ll cover in today's article:
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What is inventory value?
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What is inventory risk?
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How to mitigate inventory risk with Hummingbot