In principal OTC execution, the desk sells Bitcoin to you, or buys it from you, from its own book at a firm price and takes on the market risk. In agency execution, the broker works your order in the market on your behalf, passes through the prices it achieves and charges a stated commission. Principal vs agency is therefore a choice about who carries risk during execution, how cost is shown and where conflicts of interest can arise.
Two capacities, one desk
Many OTC providers can act in either capacity. The same firm might quote you a firm price for one order and work another as agent. What matters is the capacity for each trade, which should be stated in writing before you trade.
A third model sits between them: riskless principal. The desk becomes your counterparty for legal and settlement purposes, but only after it has bought or sold matching Bitcoin in the market. Economically it resembles agency; contractually it looks like principal. Ask how the provider classifies these trades and how it charges for them.
How principal execution works
You request a quote. The desk returns a firm all-in price for the full size, valid for a short window. If you accept, the trade is done at that price. The desk then manages the risk it has taken on, by hedging, drawing on inventory or offsetting against other clients' flow.
What you get: price certainty at the moment of acceptance, and a single execution. Market moves after acceptance are the desk's problem, not yours.
What you pay: the desk's charge for taking risk, embedded in the spread. That charge rises with size, volatility and how hard the position is to hedge. You do not see it as a separate line.
This is the model behind most RFQ pricing and many negotiated block trades.
How agency execution works
You give the broker an order with instructions: size, time window, limit price and benchmark. The broker executes it across one or more venues, often using an algorithm such as TWAP or VWAP. You receive the average price achieved, plus a commission.
What you get: transparency. You see the fills, the venues and the commission separately. You also benefit if the market moves in your favour during execution.
What you pay: an explicit commission, plus the market impact and price movement during the execution window. If the market moves against you, the cost is yours.
Principal vs agency: side by side
| Factor | Principal | Agency |
|---|---|---|
| Who takes market risk during execution | Desk | Company |
| Price known in advance | Yes, firm quote | No, an average of fills |
| How cost is shown | Embedded in spread | Commission plus fills |
| Transparency of execution | Low: one price | High: fill-level detail |
| Main conflict to manage | Desk profits from the spread it sets | Broker may favour certain venues or its own flow |
| Typical use | Large single allocations, deadlines, price certainty | Patient execution, recurring buying, cost visibility |
Neither model is better in general. They answer different questions. Principal execution asks, "What will you charge me to take this risk now?" Agency execution asks, "How well can you work this order for me?"
Conflicts of interest to understand
Both capacities carry conflicts. Neither is a reason to avoid a provider, but each should be understood and managed.
In principal trading
- The desk is on the other side of your trade, so a wider spread is directly its gain.
- Knowledge of your order could inform how the desk positions its own book before or during hedging. Ask how client order information is protected internally.
- "Last look", where a desk can reject or re-quote after you accept, shifts risk back to you. Ask whether it applies.
In agency trading
- The broker may route orders to venues where it receives rebates or has an interest.
- It may match your order against its own principal flow without telling you, which turns agency into principal without the disclosure.
- Commission structures can reward volume rather than quality.
CFO tip: require the trade confirmation to state the capacity (principal, riskless principal or agency) on every trade. If a provider resists, treat that as a finding in your due diligence.
Matching capacity to the order
Practical guidance for corporate treasuries:
- Large one-off allocation, approved at a price. Principal, through competing firm quotes. Price certainty supports the board approval.
- Recurring purchases under a programme. Agency, worked over time against a benchmark, with explicit commission. See dollar-cost averaging vs lump sum.
- Very large orders relative to market depth. Often a blend: a principal block for part of the size and an agency worked order for the rest.
- Sales of a large position. Depends on urgency and information sensitivity. See selling a large Bitcoin position.
Whichever capacity is used, the result should be judged against a benchmark set in advance, as described in best execution for corporate Bitcoin trades.
Settlement differs too
Capacity also affects settlement. In principal trades the desk is your counterparty, so its solvency and settlement terms matter directly. In pure agency trades the broker may arrange settlement with venues on your behalf, and you need to know where your cash and Bitcoin sit while that happens. In either case, confirm that Bitcoin is delivered to your own custody rather than left with the provider. Companies should take their own legal advice on the contractual capacity in their trading agreements.
How The Bitcoin World helps
We help companies decide which capacity suits each order, request competing principal quotes or set agency instructions and benchmarks, and review results across providers. Execution, custody and settlement are carried out by licensed third-party institutions. See our OTC liquidity service.