How Last Look Affects OTC Forex Execution and Slippage

Summary

The document explains Last Look in decentralized foreign-exchange trading: a liquidity provider may review and reject an order even after it matches a displayed quote. It places the practice within the traditional quote process of inquiry, quote, execution, and confirmation, and describes latency and stale prices as early reasons for the mechanism. It also discusses how fragmented liquidity venues can lead a provider to reject competing orders after its available depth has been used.

A worked example shows a market order matched against a limit quote, then rejected during the review window and executed at the next available price, creating slippage. The text also raises concerns about pre-hedging, selective rejection, and transparency, alongside the argument that removing Last Look could widen spreads. These are explanations and claims rather than a measured study; the document gives no systematic estimate of rejection rates or execution costs, so outcomes will depend on venue rules and provider behavior.

Key ideas

• Last Look gives a liquidity provider an opportunity to reject an order after it matches a displayed quote.
• Latency and stale quotes are described as historical motivations for the mechanism.
• If a matched order is rejected, execution may fall to a worse available quote and incur slippage.
• Fragmented OTC liquidity can complicate how providers manage displayed depth across venues.
• The document presents concerns about transparency and opposing views about effects on spreads, without quantifying them.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.