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Yield Histograms - Investigating Toxic Accounts

Once we have identified an adverse group of clients it is useful to diagnose why they managed to extract PnL from a trading book.

Histograms can be useful in identifying the standard deviation and skew of a distribution of returns. This can be a critical step in understanding the source of a counterparties toxicity. They can help to identify latency arbitrage, sweeping, scalping and dealing not full traits.

Once you have identified and filtered by the toxic counterparty/ies, switch the yield profile to histogram:

Select the time horizon to analyse. Typically when looking to identify trades that have taken advantage of latent prices we will analyse the 100ms or 500ms time horizon.

Filter by the negatively yielding trades by selecting 'Strictly lower than this bar (pnl < 0)' will apply a filter that only includes all trades which carry a negative yield at 500ms:

This will help to isolate trades that have capitalised on latent/stale pricing as they are costing the HOUSE PnL.
Once the filter is applied (by reloading histograms), flick the chart back to 'Yield Profile' you are then able to use Echo's Groupings and Filters to drill down into whether there is a higher proportion of offside fills for a group of counterparties, a particular instrument or even timezone. This may indicate issues with pricing or with the nature of flow being onboarded.

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