Understanding where and how trades execute relative to the best available price is fundamental to managing execution costs. While our first episode explored the concept of liquidity pool addressability, we take the analysis deeper by examining the price premia associated with different types of trading venue. By measuring what proportion of trades execute at, inside, or outside the consolidated European Best Bid/Offer (EBBO), we can quantify trading cost differences between liquidity pools and make more informed decisions about where to route orders.
Using the EBBO, and a benchmark of the bid for a seller and the offer for a buyer, we can measure whether a liquidity pool offers a premium (or discount) for immediate liquidity versus current prevailing price. Deviation from the benchmark suggests increased (or decreased) liquidity cost and the analysis can be used to assess whether any execution bias towards one type of pool or another is justified.
As shown in the first chart, the ‘default’ position is the electronic intraday liquidity pool, consisting of the displayed and non displayed books and periodic auctions. This is the ‘most addressable’ intraday liquidity pool. As trade size is a determining factor for the liquidity premium, among others such as availability of liquidity and volatility, we use it to build a granular view of the premium across different types of liquidity pool.
Figure 1: Distribution of trades by size buckets for European markets, March 2025 to January 2026. The upper panel shows average daily value traded in EUR at each price point. The lower panel shows the ratio of trades per price bucket at the given price point to all trades in all price buckets.
Figure 1 illustrates that over 96.5% of all trades fall into a size range below €25k, representing 61% of intraday order book liquidity. Of these, the proportion of trades executed at the EBBO is 77% with a further 19% falling inside the touch, with the latter being in periodic auctions and dark pools. This is a good demonstration of the value of these mechanisms in drawing order flow into the multilateral marketplace. On a value weighted basis across all buckets, 96% of trades pay no premium to EBBO, and of these 28% receive a discount. This underlines the importance of the electronic order books as not only the most substantial liquidity pool but also the most reliable, even at larger sizes.
But why not 100% for all order sizes? Owing to the fragmentation of the order books, latency in order routing means it is possible for an aggressive order to be ‘in flight’ on its way to one trading venue when a better price simultaneously appears on another venue. Secondly an order that ‘drills the book’ by taking more than one price level without reference to prices on other venues may fall outside EBBO. Maybe it is more surprising that this figure (less than 4% of all trades) is not higher. It is a sign that the market is efficient in respect of order routing and dealing with latency. It is not shown in the chart but curiously, the phenomenon affects buy orders more than sell orders (let us know if you want the details).
Next we move to the Off Order Book liquidity pools, depicted in the second chart. As discussed in Episode 1, these liquidity pools are less addressable as they depend on an investment firm’s access to a network of brokers or market makers and their IOI/RFQ setup.
Figure 2: Distribution of trades by execution price point and by size buckets for European markets, March 2025 to January 2026. The label in both panels depicts the average daily value traded in EUR per price point and ratio of all trades executed in a given size bucket to the overall number of trades.
First, a caveat; Off Order Book trades must be reported by a market participant (as opposed to an electronic trading venue) via a trade reporting facility. The time limit set by the regulators to submit a report following a trade is one minute. This means analysis of these trades suffers a time lag to the EBBO, although much of the reporting is automated and instantaneous, particularly in the case of internalisation. This is noticeable in that 29% of trades are executed outside of the EBBO benchmark in the Agency Crossing category and 12% in the Internalisation category, compared with only 4% for the Order Books. Using a time window of one minute as a tolerance for EBBO will significantly reduce this effect - such a tool is available in our Best Execution analytics service.
Nevertheless, Agency Crossing and Internalisation liquidity pools demonstrate very high levels of EBBO price improvement with 50% of trades executed inside the touch - a significant liquidity discount and more than the Order Books at 19%. Of course, these two Off Order Book liquidity pools account for only 16% of smaller trade sizes executed on the Order Books, an indication of the proportion of trades that could be potentially drawn back into the Order Book if spreads were tighter.
When we scale up the trade size bucket to look at trades above €500k, we find that trading in these two liquidity pools is 5.4x more than that of the Order Books by value, as would be expected. The proportion executed outside of EBBO is 77.5% which indicates that these are trades where prices may be manually negotiated and where the reporting latency is a significant factor.
Figure 3: Consolidation of all trade categories, On Order Book and Off Order Book, March 2025 to January 2026.
Figure 3 brings together the first two charts to give a consolidated view of the whole market showing that the bigger the trade, the higher the liquidity premium, as expected. The data reveals a clear hierarchy in execution quality across liquidity pools. Intraday order book trading delivers the most consistent EBBO execution for small and medium sized trades, while Off Order book liquidity pools offer greater price improvement through mid-point matching, but for a smaller pool of liquidity.
For larger trades, the picture shifts considerably, with negotiated executions and dark pools playing a dominant role despite higher apparent deviation from EBBO benchmarks. These findings underscore the importance of precise monitoring and demonstrate that execution strategies should be calibrated not just to trade size, but to the specific cost characteristics of each type of liquidity pool and each trading venue. Investors can compare their own trading results to this overall summary of the market to identify the strengths and weaknesses of their routing strategies.
In our next episode of Liquidity Matters we will extend this analysis to examine whether the quality of a liquidity pool is durable, i.e. whether the premium paid for immediate liquidity erodes over time as price evolves, or increases.
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