A Request for Quotation (RFQ) is a formal process where a prospective buyer solicits price quotes from multiple liquidity providers for a specific financial instrument, including crypto assets. It is a cornerstone mechanism for institutional options trading and large block trades in over-the-counter (OTC) markets.
Mechanism
The operational workflow involves an institutional trader broadcasting a request specifying the crypto asset, quantity, and desired side (buy or sell) to a curated group of market makers or brokers. These liquidity providers then respond with firm, executable prices, allowing the initiator to select the most favorable quote for execution.
Methodology
The strategic advantage of RFQ in crypto investing is its ability to facilitate price discovery, minimize market impact, and preserve anonymity for significant transactions. By engaging directly with selected counterparties, institutions can achieve superior execution quality, reduce slippage, and mitigate front-running risks compared to executing large orders on transparent, public order books, thereby optimizing capital deployment.
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RFQ protocols minimize information leakage in block trades by channeling discrete inquiries to select liquidity providers, controlling information flow.
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