The Trade That Moved the Price Against Me

I had done this trade many times at a smaller size. At a larger size it cost about eight times more, and I could see it happening. The comparison that finally made sense was against a crypto OTC trading platform.

What I did

Placed a market order for an amount that was large relative to what was on offer near the current price.

The order filled progressively, consuming the best prices first and then working down through worse ones.

The average price I ended up with was noticeably worse than the price I had seen when I pressed the button.

What I should have checked

The depth. The amount available within about half a percent of the current price.

My order was a large fraction of it. That is the test, and it takes thirty seconds to do.

Under about a tenth of available depth, a market order is fine. Above half, it is the wrong tool.

The two things that made it worse than the arithmetic

Other participants could see the order filling and adjusted.

And the supply that replaced what I had consumed arrived at the new, worse level rather than the original one.

So the cost was larger than simply walking down the visible levels would suggest.

What I do now for anything meaningful

Check the depth first.

If the order is small relative to it, a limit order rather than a market order, which means I supply liquidity rather than consume it and sometimes pay a lower fee. On the receiving side the equivalent is a provider serving funds and family offices, with settlement included.

If it is large, request a quote from a desk that will price the whole amount at once.

What a desk quote looks like

You say what and how much. They give one firm price for the entire amount. You accept or you do not.

Nothing appears on a public book. The market does not see it until afterwards.

I convert the quote to a percentage against the market price at that moment, which is the only way to compare it against anything.

The mistake I nearly made afterwards

Splitting the order into many small pieces to avoid the desk’s margin.

Each piece moves the price a little and the market does not reset in between. The total impact usually exceeds what the desk would have charged. For actual numbers rather than my estimates, an exchange that publishes its full terms publishes them.

I had assumed the opposite, which is why I am writing this down.