Of course we will. Your flow is the most expensive thing you own. You paid for it with marketing, IB rebates and sales salaries.
Here is the other side.
What hedging costs you:
- Commission per million
- Our spread under your markup, plus rejections and slippage when the market moves fast
- Swap differences
- Margin parked and fees to move it in/out
What holding risk costs you:
- Capital to carry the exposure
- Gap risk on news and weekend opens
- P&L swings, firm level and client level
- A risk team that watches the book
Keep the risk when:
- Your client base is broad and positions offset
- Statistically, most retail accounts lose over time. Hedging them short term gives that edge away
- Exposure stays inside limits you can afford to fund
Hedge when:
- An instrument is traded heavily one way across your book
- A client has a consistent edge: the scalper who wins small and often, the trader whose results hold as lot size grows
- The flags appear: latency arbitrage, news trading, swap hedgers collecting positive swaps.
How to tell an edge from luck: run markouts on your bridge. Flag accounts whose average markout is positive at 1 second and still positive at 5 seconds, across hundreds of trades. Normal retail flow pays the spread and can't keep that up.
New flow you don't understand yet? Put it on a separate account, so it doesn't affect terms for the rest.
Review the risk policy on three levels: client, instrument and total exposure. Change it when the way an instrument is traded shifts, or when volume crosses your internal risk thresholds.
A good LP won't just take your flow. It will also tell you what to keep.
