What Is ‘Information Leakage’ and How Does It Impact Market Efficiency?
Information leakage occurs when non-public information about a large trade or trading strategy becomes available to other market participants. This allows them to front-run the order, leading to adverse price movements for the original trader.
This behavior reduces market efficiency by discouraging large liquidity providers from participating, leading to wider spreads and shallower order books.
Glossar
Market Efficiency
Arbitrage ⎊ Market efficiency, within cryptocurrency and derivatives, reflects the speed at which mispricing is exploited, diminishing opportunities for risk-free profit.
Non-Public Information
Confidentiality ⎊ Non-Public Information, within cryptocurrency, options, and derivatives, denotes knowledge not generally available to market participants, possessing potential to influence asset valuations or trading decisions.