How Does a Principal-Based OTC Desk Manage Its Inventory Risk?
A principal-based OTC desk manages inventory risk by actively hedging its positions. When the desk takes the opposite side of a client's trade, it immediately acquires market exposure.
To neutralize this risk, the desk executes offsetting trades, often on public exchanges or with other dealers, to maintain a balanced inventory. This hedging process is crucial for managing the volatility and liquidity risk inherent in crypto assets.
Glossar
Otc Desk
Analysis ⎊ The desk performs continuous, sophisticated analysis of order flow, market depth, and derivative pricing to quote competitive, risk-adjusted prices for large block trades.
Inventory Risk
Exposure ⎊ The core of inventory risk within cryptocurrency derivatives, options trading, and financial derivatives stems from the potential for losses arising from unhedged positions or imbalances between assets and liabilities.