Liquidity aggregator is used for liquid or illiquid securities?
also arrival price is used when adverse price movement is expected or not expected?
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1st question
A liquidity aggregator is typically used for illiquid securities that trade in fragmented markets with limited liquidity. An illiquid security is a financial instrument that cannot be easily bought or sold without causing a significant change in its price, due to a lack of market participants or market depth.
A liquidity aggregator is designed to connect multiple sources of liquidity for illiquid securities, such as dark pools, electronic communication networks (ECNs), and other trading platforms, in order to improve the overall liquidity of the security. This allows traders to execute trades at more favorable prices, as they have access to a larger pool of liquidity.
However, liquidity aggregators can also be used for liquid securities, as they can help traders access multiple sources of liquidity for these securities as well, potentially resulting in better execution prices.
2nd question
Arrival price is typically used when adverse price movement is expected, as it is a trading strategy designed to minimize the impact of adverse price movements during the execution of a large order. The arrival price is the price at which the order is executed, and the goal is to execute the order at a price that is as close as possible to the average market price over the duration of the order.
The arrival price strategy is commonly used for large orders that are too big to be executed in a single transaction, as executing such orders all at once can cause significant price movements in the market. By using an arrival price strategy, traders can execute their orders over an extended period of time, which allows them to reduce the impact of their trades on the market and achieve better execution prices.
However, arrival price can also be used when adverse price movement is not expected, as it is still a useful strategy for executing large orders in a way that minimizes market impact and achieves better execution prices.
I believe if order is avove 15% of the avg expected volume then arrival price cannot be used.