Post-fill reversion describes the phenomenon where the price of a traded asset tends to move back towards its pre-trade level shortly after a large order has been executed, following the temporary price impact caused by the order itself. This short-term price movement can diminish the effective execution price for the trader, particularly in markets with limited liquidity or high volatility. In crypto markets, where liquidity can be fragmented and order books less deep, understanding post-fill reversion is crucial for assessing trading costs.
Mechanism
The mechanism of post-fill reversion is driven by temporary supply-demand imbalances created by a large trade. As the order consumes available liquidity, the price shifts. Once the order is filled, natural market forces, including other liquidity providers or opportunistic traders, may quickly push the price back towards its equilibrium, or where it would have been without the large order’s impact. In crypto, this can be exacerbated by latency arbitrage and the swift reaction of high-frequency algorithms across different exchanges.
Methodology
The strategic methodology for mitigating post-fill reversion focuses on minimizing market impact through sophisticated execution strategies like phased execution, dark pools, or smart order routing across multiple venues. Quantitative analysis of historical post-fill reversion patterns informs algorithm design and trade scheduling. For institutional crypto traders, this means employing advanced transaction cost analysis (TCA) to evaluate execution quality and adjust trading tactics to account for the implicit costs associated with temporary price deviations.
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