Please ignor my previous mail regarding the same issue, which contains some 
typos.



Greg and John,

I found that by reducing the volume per trade and increasing daily number of 
trades ( keeping the 
total volume per day constant), we can be more profitable.  This is partially 
because in a trending market
we lose less money by following the market more closely. For example, suppose 
market move from
$30 to $35. If per trade volume is 10,000 BBL and the half bid-offer spread 
is $1 for simplicity, we take 5
 trades of short positions, the total MTM for that day is 
(-5-4-3-2-1)*10,000=-$150,000 and total trading 
volume is 50,000 BBL short.  If per trade volume is 50,000 BBL, we take one 
trade, the total MTM is 
-5*50,000= -$250,000.   Thus the net difference between the two trading 
strategies is $10,000 for that
particular day.

Therefore it seems that by reducing per trade volume and increasing the 
number of trades, we can be more
profitable as a market maker.  

I rerun a scenario that Stinson sent to you on Dec. 27 where he used per 
trade volume of 30,000 BBL.
I reduce the number of trade to 10,000 while increasing the number of trades 
by factor of 3.  Almost in all
cases, I saw increased profitability.  See the colume marked "Change" for 
dollar amount change in millions.

Please let Stinson or me know your thoughts on this.

Regards,

Zimin Lu

x36388



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