How wide should a market maker quote?
You are making a two-sided market in a stock: posting a bid and an offer and hoping to earn the spread from traders who cross it.
What factors decide how wide you set your quote, and why does quoting too tight or too wide both cost you?
Show a hint
A tighter quote wins more trades but earns less per trade and gets picked off more often. Think about what makes each fill more likely to be a loser.
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.