How Does a Large RFQ Size Improve the ‘Economic Efficiency’ for a Market Maker?
A large RFQ size improves economic efficiency by ensuring that the potential profit from the trade is high enough to justify the fixed costs associated with trade processing, risk management infrastructure, and personnel time. It also allows the market maker to achieve better scaling of their hedging operations.
Small trades might not generate enough profit to cover these overheads, making them economically inefficient.
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.
Economic Efficiency
Allocation ⎊ The concept of economic efficiency, within cryptocurrency derivatives and options trading, fundamentally concerns the optimal allocation of scarce resources ⎊ capital, liquidity, computational power ⎊ to maximize expected utility or, more practically, risk-adjusted returns.