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.
Best execution is a uniform duty applied differently: equities demand optimizing against a public benchmark (NBBO), while fixed income requires constructing a defensible price through a documented, competitive process.
Best execution in equities is proven by optimizing a path through visible data; for OTC derivatives, it is proven by constructing a fair price in an opaque market.
Quantifying best execution for illiquid RFQs is an architectural process of constructing a defensible price reference through systematic data capture and multi-factor analysis.
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