What Is a Request for Quote (RFQ) System and How Does It Affect the Effective Spread?
An RFQ system is a method where a trader requests price quotes from multiple market makers simultaneously for a specific derivative trade, often for large or illiquid positions. Market makers compete by submitting their best bid and offer.
This competition often leads to a narrower effective spread than could be achieved on a standard exchange order book, as the market makers are aware they are competing directly.
Glossar
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.
Market Makers
Function ⎊ Market Makers in cryptocurrency, options, and derivatives markets actively provide liquidity by simultaneously offering to buy and sell assets, narrowing bid-ask spreads and facilitating efficient price discovery.
Effective Spread
Calculation ⎊ The Effective Spread measures the true cost incurred when executing a trade by comparing the realized execution price against the midpoint of the bid and offer prices prevailing just before the order interaction.