Build a layered definition
Visible depth is only the first layer. Dealer capacity, venue access, custody movement, fiat rails, and internal approvals determine whether an order can reach settlement.
Keeping those layers separate prevents a large aggregate volume figure from masking a narrow operational bottleneck.
Trace feedback loops
A price move can raise collateral needs. Dealers may then reduce inventory, spreads widen, and arbitrage slows as capital becomes harder to move. Each response can amplify the next.
A scenario map should connect these channels to observables without pretending to predict their exact order.
- Depth and spread
- Funding and collateral
- Venue and settlement availability
- Decision and operating clocks
Discount modelled execution
Backtests often assume a price that was visible but not necessarily available at size. Layered execution haircuts make the gap explicit.
Those haircuts should widen across stress scenarios and remain clearly labelled as assumptions, not realised outcomes.
Pre-write the exit plan
Document venue alternatives, custody dependencies, signatory availability, and fallback procedures before taking exposure.
The finished liquidity note should function as an action map: signals, constraints, owners, and review points.