The RFQ Process, or Request for Quote process, is a formalized method of obtaining bespoke price quotes for a specific financial instrument, wherein a potential buyer or seller solicits bids from multiple liquidity providers before committing to a trade. It is a prevalent mechanism in OTC markets.
Mechanism
Operationally, a client initiates an RFQ by specifying the crypto asset, desired quantity, and transaction side. This request is electronically transmitted to a selected group of market makers or principal trading firms, who then respond with firm, executable two-sided prices (bid and ask) within a predefined time window. The client subsequently chooses the most competitive quote for execution.
Methodology
The methodology of the RFQ process is strategically advantageous for institutional crypto traders, particularly for large block trades or illiquid assets, as it facilitates competitive pricing, minimizes market impact, and provides access to deep, often off-exchange, liquidity. It is fundamental in institutional crypto options trading and OTC markets, enabling participants to achieve best execution by comparing multiple bids and offers.
Algorithmic strategies and RFQ protocols are effectively combined into a hybrid execution system that uses live algorithmic data to intelligently source and validate block liquidity.
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