Toxic Flow

Definition

Toxic Flow in plain English

'Order flow' just means the stream of buy and sell orders hitting the market. Toxic Flow is the dangerous kind: aggressive orders that keep showing up right before the price moves against whoever traded with them — usually because the person sending them KNOWS something (real news, or that a posted price is out of date). It's like playing cards against someone who always seems to bet big exactly when they hold the winning hand; you consistently lose to them. Market makers fear toxic flow because trading against informed players quietly bleeds them money.

Learn these first

• Price Discovery

Related Market Microstructure terms

• Adverse Selection
• Fundamental Value
• Glosten–Milgrom Model
• Grossman–Stiglitz Paradox
• Informed Trader
• Kyle's Lambda (λ)
• Market Maker
• Noise Trader
• Order Flow Toxicity
• Order Imbalance