Mark-Out Analysis: Reading Execution Quality Beyond the Spread
Mark-out is the invisible cost of execution. While spreads are quoted upfront, mark-out — the price drift against your fill in the seconds and minutes after — is where the majority of institutional execution quality is silently gained or lost. A structured framework for reading mark-out across four windows.
Part I — What Each Mark-Out Window Reveals
1. 1ms — Adverse Selection
- Captures the immediate post-fill move. Heavy 1ms mark-out signals you are filling adversely selected LPs.
- Strong signal for last-look behaviour and LP cherry-picking.
Takeaway: Persistent 1ms negative mark-out = LP routing problem, not market problem.
2. 100ms — LP Toxicity
- Captures the LP's hedge or unwind window. Wider drift indicates LP is offloading at your expense.
- Comparing 100ms mark-out across LPs is the cleanest LP quality differentiator.
3. 1s — Market Impact
- Captures genuine market reaction to flow.Useful for sizing decisions and slicing strategy.
4. 60s — Edge Erosion
- The window where alpha strategy edges actually compound or evaporate.
Part II — Reading TCA Across Windows
5. Cross-Window Triangulation
A single mark-out number is uninformative. The shape of mark-out across the four windows is the signature — and identifies which problem to fix.
Putting It All Together
Spreads are quoted. Mark-out is paid. Most counterparties report one and not the other — and the unreported number is where the cost lives. Insist on multi-window, per-LP, regime-conditional mark-out as a standard reporting cadence.
Sources
- Orbis Securities execution analytics, Q1 2026.
- Bestex Research mark-out methodology, public summaries 2024–25.
- BIS Markets Committee Studies on FX execution quality, 2024.