Pros and cons of off-book trades
Pros of off-book trades
Off-book orders are not as reliant upon the rules of an exchange or trading system. This means that they can provide a lot more freedom and flexibility for participants to choose their own prices and outline the parameters of their own trade. The counterparties can create a private agreement that suits both of their needs and goals.
Cons of off-book trades
Off-book trades can have a higher risk of counterparty default, as there are very few rules or contractual obligations.
For some off-book trades, there is no official record kept at all. The drawback of this, is that off-book trading is often used by individuals looking to conceal their behaviour from others.
The lack of official regulation can also be a cause for concern, as there is no obligation for either party to report the trade to an exchange or publicise the orders to a governing body. And even when off-book trades are reported, so that they are executed ‘on exchange’, the process can be time consuming and experience significant delays. This is because the exchange doesn’t have to record the trade immediately.