Yield Histograms - Overview
Histograms plot the counts of trades that sit within yield buckets of specified width at each specified time horizon.
They are a useful visual tool for identifying the standard deviation and skew of a distribution of returns for a set of trades.
A histogram population to the left of zero is representative of trades that are offside at the selected time horizon, a histogram displaying significant negative skew indicates the point at which a counterparty, instrument or set of trades are most frequently causing negative PNL. At smaller time horizons this can be indicative of toxic behaviour such as latency arbitrage or dealing not full.
Histograms are a useful starting point for identifying flow which is consistently the wrong side of mid at shorter time horizons. When analysing individual counterparties this can allude to latency arbitrage, sweeping, or dealing not full strategies. In instrument analysis this can help identify latencies and inefficiencies in pricing.
Filtering and grouping allows you to drill down further into findings to pinpoint the source of the issue.
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