What Is the Role of a ‘Liquidity Provider’ on an Institutional RFQ Platform?
The liquidity provider (LP), typically a market-making firm or bank, responds to the client's Request for Quote (RFQ) by providing a binding two-sided price (bid and offer). Their role is to inject liquidity into the market by committing to buy and sell the requested derivative.
They are essential for the RFQ model as they enable the price discovery and execution for the institutional client.
Glossar
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.
Rfq Platform
Definition ⎊ Rfq Platform is the dedicated trading technology used by institutional participants to solicit firm, private pricing quotes from multiple liquidity providers simultaneously for large or complex derivative trades.
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.