Definition
Liquidity Sourcing
Liquidity sourcing is the practice of finding and accessing liquidity across venues, order types and counterparties to fill a large order at the best terms with minimal market impact.
For a large Indian order, liquidity sourcing means combining lit order-book execution via SOR across NSE and BSE, iceberg orders, block and negotiated deals, and timing trades to coincide with high-volume-profile periods. The goal is to assemble enough liquidity without signalling size.
Good liquidity sourcing is a core skill of institutional dealing desks and is measured through Transaction Cost Analysis. Because Indian liquidity is concentrated and dark venues are restricted, sourcing relies on smart use of on-exchange mechanisms and patient, impact-aware execution.
Related terms
- Smart Order Routing (SOR)Smart Order Routing is technology that automatically scans multiple trading venues and routes each order, or parts of it, to the venue offering the best available price and liquidity at that instant.
- Transaction Cost Analysis (TCA)Transaction Cost Analysis is the post-trade measurement of execution quality, comparing realised fill prices against benchmarks such as arrival price or VWAP to quantify explicit and implicit costs.
- Block DealA block deal is a large, single transaction of shares executed in a dedicated exchange window at a negotiated price within a permitted band, designed for institutions to trade size efficiently.
- Volume ProfileA volume profile shows how traded volume is distributed across price levels or across the trading day, used to anticipate liquidity and to design execution schedules.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.