medium · Market Microstructure market-impact
An institutional trader is worried about 'Signaling Risk.' Why might they choose to limit their POV to 5% instead of 20% even if the 20% rate is within their risk tolerance for impact?
- Lower participation rates reduce the commission paid to the broker.
- Higher participation rates make the order easier for HFT sniffers to detect
- A 5% rate alone guaranteed execution right at the NBBO midpoint price.
- The 5% rate avoids triggering the exchange's minimum required 'Tick Size' constraint.
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