Non-Firm Quotes are indicative prices for digital assets provided by a market maker or liquidity provider that are not legally binding or immediately executable. These quotes serve as a preliminary price discovery mechanism, signaling a potential trading interest without committing to trade at that exact price or size. They are commonly used in over-the-counter (OTC) crypto markets or for larger institutional block trades where direct order book interaction is undesirable.
Mechanism
The mechanism involves a liquidity provider disseminating a non-firm price to a prospective counterparty, often in response to a Request for Quote (RFQ). This quote is generated based on current market conditions, internal risk parameters, and available inventory, but it explicitly states that it is subject to reconfirmation or adjustment before execution. The non-firm nature allows the provider to assess real-time market impact and manage their own risk before committing to a firm price.
Methodology
The strategic use of non-firm quotes allows market participants to gauge market interest for large orders without revealing their true intentions or moving the market prematurely. It provides flexibility for liquidity providers to adjust prices based on order size, counterparty credit, and prevailing volatility, thereby mitigating slippage and managing inventory risk. The subsequent process typically involves a rapid negotiation or a re-quoting step to arrive at a firm, executable price, maintaining efficiency while accommodating the complexities of institutional-sized crypto transactions.
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