Template-Type: ReDIF-Article 1.0 Author-Name: Emilios Galariotis, Iordanis Kalaitzoglou, Kyriaki Kosmidou, Spiros Papaefthimiou, and Spyros I. Spyrou Title: Could Market Making be Profitable in The European Carbon Market? Classification-JEL: F0 Volume: Volume 40 Issue: The New Era of Energy Transition Year: 2019 Abstract: We investigate when market making can be profitable in the European Carbon Futures market, by developing an order type selection rule, based solely on transaction level data. We employ a granular approach that uses an observable variable, i.e. trading intensity, to extract the liquidity and information price components and we investigate their impact on spreads, volatility and ultimately on the profitability of different order types. We find that market orders are always less profitable than limit orders. In addition, market makers are expected to derive most of their profits in a low trading intensity environment, mainly due to higher liquidity commissions and a lower probability of dealing with better informed agents. In contrast, an unconditional limit order submission strategy from an off-floor trader should not be preferred, apart from a medium trading intensity environment, where information and liquidity premia adequately compensate them for execution and information risk. Handle: RePEc:aen:journl:ej40-si1-Kalaitzoglou File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=3301 File-Format: text/html File-Restriction: Access to full text is restricted to IAEE members and subscribers.