What happens in the window between a quote and a client's acceptance?

A quote window is the short period — usually seconds to a few minutes — during which an OTC desk's price is held firm, as covered in our guide to why OTC quotes have a validity window. Inside that window the desk is committed to a fixed price while the market keeps moving.

For USDT against AED the exposure is narrow, since both sides sit close to a fixed peg: the dirham at 3.6725 to the dollar, and USDT intended to track the dollar one for one. For BTC or ETH the same window can move the price materially, which is why the mechanics below matter more.

What is a hedge leg, and how does it remove the desk's market risk?

A hedge leg is the offsetting trade an OTC desk places at a liquidity provider or exchange the moment it prices a client's ticket, so its net position returns to flat regardless of which way the market moves before settlement. If a client sells the desk 500,000 USDT, the desk goes long that USDT the instant it quotes; the hedge leg closes an equivalent notional at the same moment, so it carries no directional bet while the client's coins confirm on-chain.

In practice a hedge leg takes one of three shapes: a spot sale on an exchange order book, an OTC swap agreed directly with a market maker at its own quoted price, or a swap into another dollar instrument that is easier to move to fiat immediately. Whichever channel it uses, the exposure it closes on a USDT ticket is USDT trading away from its one-dollar peg, not a view on the dirham, fixed to the dollar at 3.6725 since 1997.

A worked example: hedging a 500,000 USDT ticket at a 0.25% spread

A 500,000 USDT ticket sits in the desk's second pricing tier, where the published spread is 0.25% — the bands run 0.40% at 100,000, 0.25% at 500,000, 0.15% at 2,000,000 and 0.08% at 10,000,000, on our pricing section. At the 3.6725 peg, 500,000 USDT is worth AED 1,836,250 before the spread; the 0.25% spread is AED 4,590.63, so the client's net proceeds are AED 1,831,659.37.

The moment the desk issues that quote, it books an offsetting hedge leg for the same notional, so its position nets to flat whether USDT trades a fraction above or below one dollar before the transfer confirms. Once the USDT lands on-chain — about a minute on TRC20, at 19–20 confirmations — the desk closes the hedge leg and pays AED the same business day through UAEFTS. The 0.25% spread pays for that hedge leg, the compliance review and the wire; it is not a bet on where USDT or the dirham will move.

What is settlement risk, and why is it sometimes called Herstatt risk?

Settlement risk is the exposure that remains after market risk is hedged: the gap in time between a desk receiving one leg of a trade and paying out the other. On a USDT-for-AED ticket, the desk receives the crypto leg — USDT, confirmed on-chain in minutes — before it pays the fiat leg, AED same business day by UAEFTS or USD in 2–5 business days by SWIFT. For that gap the desk carries the client's counterparty exposure, not a market position.

The term traces to Bankhaus Herstatt, a Cologne bank whose licence was withdrawn on 26 June 1974, after the German payment system had closed for the day but before its New York correspondent had paid out the dollar legs. Counterparties that had already paid deutschmarks that morning were left unpaid on the dollars owed on the other side of the same trades, as the Bank for International Settlements later documented. The lesson generalised: whenever one leg of a trade settles before the other, whoever paid first is exposed to the other side failing or delaying, regardless of the market.

It matters to a client because a desk that manages settlement risk with segregated funds and same-day rails does not need to price in a cushion for the odd failed counterparty — part of why a VARA-licensed desk can hold a tighter spread than one outside the regulated perimeter.

Who bears each risk on an OTC ticket: the client, the desk, or nobody?

Three different risks sit inside a single OTC ticket, and the table below sorts each one by where it lives in the trade and who carries it once the desk has hedged its own book.

Why can a hedged desk quote a narrower spread than an unhedged one?

A hedged OTC desk can quote a narrower spread than an unhedged one because its price no longer needs a cushion for the market moving against it before settlement. An unhedged dealer pricing at 0.25% but leaving the position open is betting the market will not move enough, in either direction, to erase that margin — a bet that occasionally fails badly.

IWGT's published bands get narrower as size grows because the fixed costs of compliance review and the hedge leg are spread over a larger notional, as explained in our guide to why OTC desks set a minimum ticket. The spread pays for hedging and settlement infrastructure, not a forecast of where the market is headed.

The bottom line on how an OTC desk hedges a client ticket

An OTC desk manages two separate risks on every ticket. Market risk, between a quote and the coins confirming, is closed within moments by a hedge leg. Settlement risk, between the crypto leg confirming and the fiat leg paying out, is managed by timing and segregated funds, not by pricing.

This guide is informational and is not legal, tax or investment advice, nor an invitation to buy or sell any virtual asset. Rules and figures are as of September 2026 — re-check the sources before acting. Virtual assets may lose their value in full or in part and are subject to extreme volatility.