Does the Asset’s Liquidity (E.g. BTC Vs. an Altcoin) Affect the Minimum RFQ Size?
Yes, asset liquidity significantly affects the minimum Request for Quote (RFQ) size. Less liquid assets, like many altcoins, typically require a smaller minimum RFQ size because market makers want to limit their exposure to large trades that are hard to hedge or offload.
Conversely, highly liquid assets like BTC or ETH can handle much larger minimum RFQ sizes. This is due to the lower market impact and ease of execution and hedging for market makers.
The minimum size acts as a risk control mechanism.
Glossar
RFQ Size
Specification ⎊ ⎊ Request for Quote size, within cryptocurrency derivatives, denotes the nominal value or quantity of the underlying asset referenced in a specific option or forward contract being quoted.
Asset Liquidity
Resilience ⎊ In the context of cryptocurrency, options trading, and financial derivatives, resilience describes the capacity of an asset to maintain liquidity under adverse market conditions, particularly those stemming from environmental or geopolitical instability.
Highly Liquid Assets
Volatility ⎊ Highly liquid assets, within cryptocurrency and derivatives markets, demonstrate minimal price impact from individual trades, facilitating efficient price discovery and reduced execution costs.
Altcoin
Definition ⎊ An altcoin refers to any cryptocurrency other than Bitcoin, encompassing a broad category of digital assets with varied functionalities and market capitalizations.
Minimum Rfq Size
Threshold ⎊ Within cryptocurrency derivatives, particularly options trading, the Minimum Rfq Size represents the smallest contract size or notional value a market maker is obligated to quote for, ensuring liquidity and price discovery.
Request for Quote
Inquiry ⎊ A Request for Quote (RFQ) within cryptocurrency derivatives represents a formalized solicitation from a potential client to multiple counterparties for pricing and terms related to a specific transaction.