Detecting Toxic Flow

Understand

This paper develops a framework to predict toxic trades that a broker receives from her clients.

• Toxic trades are predicted with a novel online learning Bayesian method which we call the projection-based unification of last-layer and subspace estimation (PULSE).
• PULSE is a fast and statistically-efficient Bayesian procedure for online training of neural networks.
• We employ a proprietary dataset of foreign exchange transactions to test our methodology.