Direct Quotation refers to a specific, firm price provided by a liquidity provider to a liquidity demander for a defined quantity of a cryptocurrency asset or derivative. This quote is typically offered in response to a direct Request for Quote (RFQ) and implies an immediate, actionable price at which a transaction can occur without further negotiation.
Mechanism
In a direct quotation system, a client initiates an RFQ specifying the asset, side (buy/sell), and quantity. This request is routed directly to one or more designated liquidity providers. Each provider’s pricing engine, often driven by real-time inventory and risk parameters, generates a firm bid or offer. This quote is then returned to the client for acceptance within a specified time window, facilitating bilateral, off-exchange transactions.
Methodology
The methodology relies on pre-established relationships and direct communication channels, often facilitated by dedicated trading platforms or FIX protocol connections. Liquidity providers apply their internal pricing models, factoring in market data, their current risk exposures, and desired profit margins, to construct the direct quote. The system prioritizes transactional certainty and efficiency for institutional-sized orders, bypassing the complexities and potential market impact of public order books.
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