Price Reversion Post-Trade is the observable phenomenon in crypto markets where the price of an asset, after being moved by a trade, tends to revert towards its pre-trade level or a new equilibrium shortly after the transaction. It indicates the temporary nature of market impact.
Mechanism
This occurs when a large order temporarily exhausts available liquidity, causing a transient price movement, but subsequent market activity or the absence of further directional pressure allows the price to recover. It reflects the immediate, yet often short-lived, impact from order execution.
Methodology
Quantitative analysis of trade data and order book dynamics helps to measure the speed and extent of price reversion. Trading algorithms exploit this by analyzing the market impact of their own or other participants’ trades, aiming to optimize execution strategies to minimize adverse price movements or potentially profit from temporary dislocations.
System integration empowers discreet block trade execution by creating a controlled information environment for optimal price discovery and minimal market impact.
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