FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
A long time ago in a market not so far away, traders relied on visible order books, price ladders, and intuition to navigate the equity derivatives universe. Today, however, that trading universe has become fragmented, complex, and increasingly dominated by what can only be described as phantom liquidity — quotes that flicker in and out like holograms, volume that disappear on contact, and signals that deceive more than they inform.
With Star Wars Day (May the Fourth be with you) just around the corner, it’s fitting to reflect on the growing disconnect between displayed liquidity and executable liquidity. Just as Jedi must distinguish between illusion and reality, modern derivatives traders must learn to see through the fog of fleeting quotes, synthetic liquidity, and venue fragmentation. For many, the force they must now rely on is not mysticism, but intelligent insights brought together by an informative approach to execution and order management, to bring transparency to a rapidly evolving galaxy.
The rise of electronic liquidity provision and ultra-fast quoting has undeniably deepened markets in theory. Yet in practice, the tradeable size at any given level can be far thinner than it appears. On-screen depth is often little more than a mirage, especially during volatile periods, which disappeared in early April when traders need reliability most. The problem is not just academic, it’s commercial. Traders are executing larger or more complex structures. Volatility strategies, delta-neutral baskets, or multi-leg options all face increasing slippage and higher reject rates, not to mention mounting execution costs.
Regulatory reforms like MiFID II have of course tried to enhance market transparency, but ironically, some of these efforts have led to unintended consequences. As more trading has shifted off-exchange, price discovery has become more scattered. For those without access to consolidated data and execution intelligence, the modern derivatives market can resemble a galactic empire, where the few with advanced systems thrive and the rest navigate blind.
This is where technology must play its part. A sophisticated approach to execution and order management is no longer a “nice to have” but the lightsabre of the modern trader. Smart order routing, real-time venue analytics, and liquidity aggregation are not just words only traders understand. They are essential in the fight against phantom liquidity. Execution algos tailored for equity derivatives, sensitive to implied volatility and cross-asset correlations, can significantly reduce market impact and improve hit rates.
The truth is that even the best technology needs a strategic mind behind it. Execution quality depends not just on speed, but on context. Is the quote firm or indicative? Is the venue showing size internally crossing flow, or merely recycling public data? Is it worth crossing the spread for immediacy, or working the order with patience? These are the decisions that separate padawans from Jedi masters— and ones that a well thought out approach to execution and order management support with intuitive tools and analytics.
As Star Wars fans mark May the fourth, let’s remember that equity derivatives trading doesn’t have to feel like navigating the trench of the Death Star. With the right execution infrastructure, traders can access genuine liquidity, reduce risk, and regain control in a market where illusion often masquerades as substance.
Sylvain Thieullent is CEO of Horizon Trading Solutions.
