Liquidity Reduction - Identifying accounts that are exhausting liquidity

Counterparties are increasingly using tactics to access a brokers top-of-book pricing. Large quantities are traded at once split out over multiple orders, meaning they hit the top-of-book rate without depleting liquidity.

This not only means the fair volume weighted price is not being paid, but also it can become hard to remove the risk from the book due to the quantities traded.

This may be indicative of machine gunning, sweeping or just of a large account building up a position that would be very hard to hedge away.

One way to mitigate the risk is to move price unfavourably (or Liquidity Reduce) for the account trading to disincentivise such large moves and to increase the spread for the broker and the probability of a profitable yield profile.

Here the account has tried to trade $11.8 mill in a short period.

By viewing the top of book screen we can see how the price moves as the large volume trades are put to market. There are configurations in place to ensure that the widening increases if the account tries to trade large amounts in quick succession within a predefined time again. Learn how to tune liquidity reduction here.

By zooming in we can see the pricing move away from mid over a very short period of time