What internalization means for a large order

[Fairman]

What internalization means for a large order

When a broker internalizes an order, it takes the other side itself instead of sending it to the market. For small orders, this is efficient and cheap. A hundred clients buying and selling at random produce flows that offset each other.

For large orders, the broker faces risk. A single 50 lot buy leaves the broker short 50 lots, which it must hedge or hold. Brokers often handle this by routing large orders to external liquidity, with a delay while the order is passed on.

The result is a difference in execution quality. A 0.1 lot order may fill instantly at the quoted price. A 20 lot order may be re-quoted, split, or slipped.

The dynamic matters for a scalper who is scaling size. Results from small test accounts don't carry over to larger ones. The execution profile changes as the size grows.

A staged approach, increasing size gradually and monitoring slippage at each step, shows where the execution starts to degrade.

Where did fills start to change as trade size grew on the broker used here?