Explain the Concept of “Information Leakage” in Relation to Large Order Execution.
Information leakage occurs when the existence or intent of a large trade becomes known to other market participants before or during its execution. This can happen through visible orders (like a large market order), patterns in algorithmic trading, or even internal exchange leaks.
Once leaked, other traders can front-run the order, causing the price to move against the large trader and significantly increasing their slippage cost. Minimizing leakage is key to minimizing slippage.
