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.