Interdealer Trading refers to the exchange of financial instruments, including crypto assets, between regulated financial institutions acting as market makers or principal traders. This activity occurs primarily within the wholesale segment of the market, serving to distribute risk, manage inventory, and provide liquidity to the broader market.
Mechanism
This trading typically takes place over dedicated electronic communication networks (ECNs), bilateral lines of communication, or through interdealer brokers, rather than directly on public retail exchanges. Participants submit bids and offers, and trades are executed confidentially, often in larger sizes than typical retail transactions.
Methodology
The methodology for interdealer trading focuses on efficient risk transfer and liquidity provision. Dealers actively quote prices, adjusting them based on their inventory, perceived market direction, and order flow. Sophisticated algorithms are employed for price discovery, execution optimization, and real-time risk management, ensuring that dealers can efficiently facilitate client orders while managing their own market exposures.
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