What is Implication?
Implication Explained: Implication is the creation of better prices and additional volume by taking existing “explicit” orders and combining them together to generate better “implied” prices and volumes. Exchanges offer an element of this to some degree but often only to the first or maybe the second level.
They cannot do any more than this as they are not quick enough to complete the dynamically changing calculations that are required. Our software is quick enough and able to calculate universal implication across all the available market strategies (outright, spreads, butterflies, double flies, and condors)
LW creates most price improvements by trading an average of 2.4 trades (most price improvements are created by just asking for one extra trade) The cost of an extra leg is always materially beneficial to the trader in terms of additional PnL saved or generated.
Implied Trade Example
Header Key to the screenshots below
Normal Exchange Provided Information
Expiry: Expiry String eg S3.Z21 = Spread 3month out of Z21 ie Z21-H22 VOL: Total exchange volume traded
BID: Exchange BID BIDVOL: Exchange BID Vol ASK: Exchange ASK (offer) ASKVOL: Exchange ASK Vol
New LW Provided Information (Grey = Price better than exchange, White = Additional Volume)
MID: Liquidity Well proprietary calculated trueMID
iBID: LW implied BID iBIDVOL: LW implied BID Vol iBIDVOLlegs: # of trades to create the implied price
iASK: LW implied ASK(offer) iASKVOL: LW implied ASK Vol iASKVOLlegs: # of trades to create the implied price
For the S3.Z21 Spread above, LW executable price is -0.0275. The Exchange best bid is -0.03. LW has 4202 lots available at this half tick better price.
$27,512 extra in the P&L for trading one additional trade/leg, as shown below.
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