Internalization and Externalization: How to Reduce Inventory Risk

A dealer or marketmaker proposes prices to clients, at which E or she is ready to buy or sell assets. In our case, we are talking about currency payers. So dealers will have inventory to manage. And of course, this inventory is risky, as is any position in volatile instruments. The larger the risk and the less likely one can expect the offsetting flow, the more likely the market maker will externalize. A large institution will internalize the majority of their flow. At least 80% in Jiten currencies as according to Bank of International Settlement Review.