easy · Market Microstructure adverse-selection
In the context of market microstructure, what does the term 'adverse selection' specifically refer to for a liquidity provider?
- The risk of trading with a counterparty who possesses superior information about the asset's fundamental value.
- The routine cost of paying exchange trading fees and clearing charges on every executed order.
- The risk that the exchange's matching engine or network fails mid-execution on a fast trade.
- The risk that a dealer accumulates too large a one-sided inventory position during a quiet, low-volatility session.
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