Analyzing Market Impact – Does Your Trading Affect the Wider Market

[kreslik.news]

This article was written by David Mercer, CEO of LMAX Exchange.

One of the key metrics you need to consider in your choice of liquidity and transaction cost analysis is market impact. Or put simply, the effect your trading has on the wider market post trade. Rather simplistically you are told that, if the market moves a lot in reaction to your trading, then that’s a bad thing and you pay wider spreads with a high cost of rejection and higher response times.

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But, if you trade on ‘last look’ prices, lower market ... (read more)