How Does the “Last Look” Mechanism Function in an RFQ Environment?
"Last look" is a feature where the liquidity provider (LP), after receiving a client's request to trade at the quoted price, has a final, brief opportunity to accept or reject the trade. This is typically done to protect the LP from 'stale' prices caused by high-frequency trading or latency, ensuring they don't trade at a loss due to market movement.
While it protects LPs, it introduces 'information leakage' risk and potential execution uncertainty for the client.
Glossar
Execution Uncertainty
Latency ⎊ Execution Uncertainty, within cryptocurrency derivatives, represents the probabilistic divergence between a trader’s intended order execution price and the actual realized price, stemming from network congestion, exchange limitations, and order book dynamics.
Liquidity Provider
Provision ⎊ A liquidity provider in cryptocurrency derivatives contexts furnishes capital to decentralized exchanges (DEXs) or automated market makers (AMMs), enabling trading by establishing bid-ask spreads; this process fundamentally addresses the inherent challenges of order book depth in nascent markets, and is critical for efficient price discovery.