Instantaneous hedging is not market-making, says GSA
Market-making involves warehousing risk
Instantaneous hedging of customer trades in the open market cannot be viewed as market-making and firms that rely entirely on speed are contributing to hot potato trading gathering pace in currency markets, says Alex Gerko, head of FX trading at GSA Capital in London.
Traditionally the domain of banks, the rise of non-banks in market-making has led to an acceleration of so-called hot potato trading, which relies on superior technology to instantly pass the risk of customer orders on to the open
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