Hot Potato Trading
a.k.a. Hot potato
When a dealer who takes on an unwanted position passes it to another dealer, who passes it on again,…
In plain English
When a dealer who takes on an unwanted position passes it to another dealer, who passes it on again, inflating trading volume.
When a big client order lands on a dealer, the dealer may not want to hold the risk, so it quickly sells to another dealer, who does the same, and so on. Like a hot potato, the position bounces around the interbank market until someone is happy to hold it.
Economists use the idea to explain why interbank trading volume is so much larger than the underlying customer demand.
Keep this word for good
Your free Private Swap Lounge saves the terms you’ve learned and quizzes you on them. Portal under construction. Expected delivery date is December 01, 2026.