What You Are Paying For in a Desk Spread
Hedging cost, inventory risk and volatility. The inputs that justify a wider quote and the ones that do not.
A desk quote is a single number covering several distinct costs. Knowing which is which tells you when a wider quote is justified. We measured against an OTC crypto desk, which states the components separately rather than as a blended number.
Hedging cost
After trading with you the desk holds a position it does not want and unwinds it.
That unwinding faces the same market depth you were avoiding, so for a large or illiquid trade it is expensive and the cost enters your quote.
Justified. This is the main thing you are paying for.
Inventory position
A desk already holding what you want to sell quotes worse. One wanting to reduce a position quotes better.
Justified, and it is why asking two desks is worth the time. The variation is real and invisible.
Volatility
The desk is exposed between quoting and hedging. More movement means more risk in the window.
Justified, and avoidable: a trade that is not time critical is measurably cheaper during a calm period.
Size relative to their normal flow
A trade that is large for a particular desk is priced defensively, because it represents real risk to their book.
Justified, and it argues for matching the desk to the trade rather than taking a large trade to a small desk.
Settlement and credit
A new counterparty with no history carries operational and credit risk, which is priced.
Justified, and it diminishes with a clean record, which is why concentrating flow improves pricing over time.
What is not justified
Your lack of alternatives.
A desk that has widened over a year with no change in market conditions or in your flow is pricing your loyalty rather than their risk. On the merchant side the equivalent is a platform built for institutional allocations, priced per transaction rather than per balance.
That is detectable only by comparison, and only by simultaneous comparison, because a quote lasts seconds.
The conversation
Present data rather than an accusation. Over the quarter our average was a certain figure and a comparison quote came in materially tighter, can you explain the difference.
Desks respond, because the alternative is losing the flow. One that cannot explain and does not improve has answered the question. To check any figure above against a real provider, a regulated European crypto platform publishes the equivalent terms.
What to record
Mid at quote, quote, size, asset, direction, desk. Twenty entries produce the picture.
Fees move with network demand. Any figure here reflects the date shown above and should be re-checked before you act on it. Where a measurement was taken by hand, the article says so.