Traders who pull out liquidity from the markets are known as aggressors in trading. Aggressors purchase at-market at the existing ask price instead of placing bids for shares. Instead of stating a selling price, they will trade at the prevailing at-market bid pricing. Trading aggressors make purchases for immediate execution by buying available shares and contracts at the prevailing at-market price.
Who is an aggressor in trading?
An aggressor in trading is someone who actively engages with the market to extract liquidity from it. They are opposed to passive traders who add liquidity to the market. Aggressors examine market pricing, including on futures exchanges, which is dependent on a variety of orders at various prices.
Who Is an Aggressor in Trading?
Traders who deplete market liquidity by placing buy and sell orders at current at-market prices are called aggressors in trading terminology. Most traders are passive, and they add liquidity to markets and do not have an instantaneous closure or execution by entering buy and sell orders. When it comes to trading, being aggressive implies not being a passive trader and not adding liquidity to the market. Now, let us look at how aggressors trade in the market.
How does an Aggressor Trade?
Aggressors research pricing in markets like futures exchanges, which are built on a variety of orders at different prices. The bid-ask spread will be determined by the top bid-to-buy and top offer-to-sell ratios. The price differential among these two values will fluctuate based on market situations. There may be a difference in the number of contracts accessible for buying or selling.
For instance, let us assume the GBP/USD bid-ask spread is 2 million units at 1.1010 / 1.1210, an aggressor would tend to purchase 2 million units at the best asking price of 1.1210 or sell 2 million units at the bid price of 1.1010.
A passive trader interested in purchasing GBP/USD would offer a little more, such as 1.1211.
Aggressive trading seeks to widen spreads and drain liquidity from markets, whilst passive trading seeks to reduce spreads and add liquidity.
What influences does an Aggressor Have on the Market?
Aggressors have a key role in the trading market. The order book gives market players access to a set of all existing bids and offerings, including some that may or may not be near the current market price. Aggressors keep selling at progressively lower costs or buy at progressively higher prices by acting quickly at the present bid or list price. As markets get thinner and more uneven since other traders are driven away, this friction generates volatility.
Among the advantages of a liquid market is the ability of investors to take charge of their money and allocate it elsewhere. When market liquidity reduces, it tends to increase market volatility. That is why electronic marketplaces now passively encourage passive trading and discourage aggressive trading.
We hope this brief guide to aggression in trading will help you better understand the nuances and intricacies of trading.