A $1 million order to trade BTC would have resulted in an additional 4 to 13 bps of slippage, in median terms, if traded solely on one of four exchanges versus smart order routing to all four exchanges during the same time period. The median slippage increases to 134 bps for an order size of $5 million in BTC. For alt coins, we observed some median slippages in excess of 7,000 bps.
As institutional demand for digital assets grows, one strategy that has gained popularity among institutional traders is connecting to multiple venues, rather than relying on a single venue. This approach has several advantages, including increasing the likelihood of finding liquidity, obtaining better prices, decreasing the time required to complete an order, reducing information leakage, and eliminating the risk of a single point of failure. However, one of the most significant challenges of this approach is the complexity of managing multiple venues. Talos not only simplifies the operational burden of maintaining these connections and data feeds, the Talos SOR seamlessly aggregates and intelligently accesses liquidity from multiple venues to help optimize your trading performance.
Multi-venue vs. single-venue execution
Single-venue execution allows traders to focus on one venue, simplifying the trading process and reducing the need to manage multiple connections and data feeds. Additionally, concentrating orders on a single venue may result in volume discounts or other cost-savings opportunities offered by that venue.
However, this simplicity and potential for savings is often outweighed by the benefits of connecting to multiple venues. Traders can access a larger pool of liquidity, making it more likely that they can execute trades quickly and efficiently. In addition, having access to multiple venues allows traders to compare prices and obtain better rates. This not only helps to reduce the cost of trading, but enhances the overall profitability of the trading strategy.
Another benefit of multi-venue execution is the reduction in information leakage. When institutional traders place large orders with a single venue, that order book can be impacted, causing the price to move against them. However, by splitting the order across multiple venues, traders can reduce the impact on the broader market.
Lastly, using multiple venues also reduces the risk of a single point of failure. Relying on a single venue means that if that provider experiences any issues, such as technical problems or an outage, the ability to execute trades may be severely limited. By connecting to multiple venues, traders can distribute their orders and ensure that they have backup options in case one venue experiences any issues.
In summary, by accessing a larger pool of liquidity across multiple venues, obtaining better prices, reducing information leakage, and mitigating the risk of a single point of failure, institutional traders can improve their overall trading performance – if they have the right tools to aggregate and access multi-venue liquidity.
The Talos SOR vs. single-venue execution
Our analysis of snapshots from various order books demonstrates how Talos's multi-venue, liquidity-aggregating SOR would have consistently outperformed execution at individual exchanges in terms of slippage reduction, which can translate into substantial cost savings. The findings were consistent for buy and sell market orders for BTC and ETH, as well as for alt coins such as Polygon (MATIC) and Shiba Inu (SHIB), across multiple institutional-sized orders.
During the period March 1-31, 2023, we looked at the order books of 4 exchanges at 1-second intervals to understand the quoted price of a given order size. We summarize the median slippage for buy and sell orders of a given order size versus the price at which those same orders would have theoretically executed using Talos’s SOR to determine the optimal routing among all 4 exchanges.
Tables: Median slippage (in bps) at individual exchanges vs. Talos’s multi-venue SOR for market buy/sell orders, by size (in USD)
How Talos powers your multi-venue liquidity strategy
Talos’s SOR uses advanced algorithms and real-time data to determine an execution strategy to optimize trading performance and minimize costs, based on your preferences and on a number of factors, such as liquidity, price and venue-level economics. Our SOR incorporates venue-specific fees, rebates and other costs to help maximize net returns.
Institutional demand for digital assets continues to grow, and with it, the demand for sophisticated institutional-grade tools to manage complexity and optimize trading performance. The Talos SOR and advanced execution platform were built for institutions by engineers with expertise in building institutional trading platforms for traditional markets. Contact us to learn more about Talos and how we can help power your access to digital assets.
Disclaimer: Talos Trading, Inc. and its affiliates (“Talos”) offer software as a service (“SaaS”) products that provide connectivity tools for institutional clients. Talos does not provide clients with any pre-negotiated arrangements with liquidity providers or other parties. Clients are required to independently negotiate arrangements with liquidity providers and other parties bilaterally. Talos is not party to any of these arrangements. Services may not be available in all jurisdictions. For information about which services are available in your jurisdiction, please reach out to your sales representative. Talos is not is not an investment advisor or broker/dealer. This document and information do not constitute an offer to buy or sell, or a promotion or recommendation of, any digital asset, security, derivative, commodity, financial instrument or product or trading strategy. This document and information are not intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. This document and information are subject to change without notice. It is provided only for general informational, illustrative, and/or marketing purposes, or in connection with exploratory conversations with institutional investors and is not intended for retail clients. The information provided was obtained from sources believed to be reliable at the time of preparation, however Talos makes no representation as to its accuracy, suitability, non-infringement of third-party rights, or otherwise. Talos disclaims all liability, expenses, or costs arising from or connected with the information provided.