What Role Does a “Liquidity Provider” Play in an RFQ System?

A liquidity provider (LP) is the counterparty that receives the RFQ and offers a binding price (a quote) to the liquidity seeker. Their role is to absorb the risk of the trade by taking the opposite side of the transaction, effectively bridging the supply and demand gap.

LPs are crucial for market efficiency as they commit capital and expertise to continuously quote prices, ensuring that the liquidity seeker can execute their trade quickly and competitively. They are compensated by the spread they charge.