When we examine the aggregated bid-ask spreads for FX options for different denominations on the Digital Vega Medusa multi-bank aggregator, we see something a little odd – the bid-ask spreads for very large denominations are significantly tighter than those for smaller denomination options.
Common sense dictates that larger sizes should require a liquidity premium to cover the increased cost of risk coverage. So what could explain this effect?
Dealer intervention and auto-price
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