Netting with firm central book vs trading directly with market
Hi,
Let's talk about submitting trades inside a fund.
Market = basically you buy/sell something from an external party and the transaction is in your account. Typical trading
Netting = traders in the firm submit their orders to an aggregation system that matches buyers and sellers. The firm assigned a number to each internal trader's account and only buys/sells if needed. If the combined order is 0, NOTHING is bought at market.
It's further broken down into 2 subcategories
- Automated Netting: basically an internal market maker module that does things an in automated way. Essentially for on exchange and liquid products
- Human Netting: for firms that are more old fashioned. Lot more internal bullshit. I guess non-liquid stuff like CLO's would fall into here, but I would argue you be better off going directly to market
My issue with netting:
- you don't know market impact and are essentially getting by using internal flows. (which may be good for some people)
- firm may front run your ideas
- if human netting, a lot more bullshit and trading frequency is limited.
Why would you prefer one over the other? Does it factor into your decision to work at the firm?
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