Why it matters
It explains why spreads widen, fills worsen, or last look rejects increase for certain behaviors or times.
Decision use: treat this term as a risk input. If you can’t observe it, you can’t size for it.
Common trap
Assuming execution is neutral. The other side adapts to patterns.
Example
A trader hits quotes immediately after news bursts. The LP sees negative markouts and widens or rejects.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.