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I have been seeing the term liquidity grab being misused very often so I'd like to explain what exactly it means.
To understand what it means one needs to have a basic understanding of institutional, and more specifically market operator order flows. https://twitter.com/drZeroBound/status/1357730002020814853
To understand what it means one needs to have a basic understanding of institutional, and more specifically market operator order flows. https://twitter.com/drZeroBound/status/1357730002020814853
There are many particularities to market operators.
The most important one is the difficulty in efficiently filling [accumulate or distribute] size unless a significant chunk of the market is trading against desired direction.
The most important one is the difficulty in efficiently filling [accumulate or distribute] size unless a significant chunk of the market is trading against desired direction.
i.e If market operators want to accumulate b4 marking the price up, they need other participants to be selling - they "grab" long liquidity from the market.
Conversely, if they want to distribute before mark down, they need long participants, and that's grabbing short liquidity.
Conversely, if they want to distribute before mark down, they need long participants, and that's grabbing short liquidity.
2 main concern groups that market operators deal with when managing a market.
Positioning concerns:
- slippage
- frontrunning by smaller players
Impulse concerns:
- weak participants trading the desired direction
- too much leverage [greed] trading the desired direction
Positioning concerns:
- slippage
- frontrunning by smaller players
Impulse concerns:
- weak participants trading the desired direction
- too much leverage [greed] trading the desired direction
A "liquidity grab" is the process by which market operators engineer liquidity in the opposite direction of their trade to be able to fill size and deal with impulse concerns which can potentially weaken the markup.
Liquidity grabs normally involve kicking off a move opposite to the desired direction and normally take advantage of some relevant news or facts that come out in the markets that can potentially help driving sentiment in the wrong direction.
Hope this clarifies.
Hope this clarifies.
This is why markets don't move when traders want them to move - Markets move when liquidity engineering operations are completed, and market operators have enough certainty that they will not be wasting resources on a failed move.
There is one concept left with regards to the above subject.
Normally, one of the key acceptance criteria for mark up / down to begin, is when it's no longer easy to perform liquidity grabs -
testing that supply or demand are in the right hands and marking will be efficient.
Normally, one of the key acceptance criteria for mark up / down to begin, is when it's no longer easy to perform liquidity grabs -
testing that supply or demand are in the right hands and marking will be efficient.
