Two-Way Quoting is a market-making practice where a liquidity provider simultaneously offers both a bid price (to buy) and an ask price (to sell) for a specific crypto asset or derivative. Its fundamental purpose in RFQ crypto and institutional options trading is to facilitate continuous price discovery and provide liquidity, enabling market participants to execute trades instantly without waiting for a matching counterparty.
Mechanism
A market maker, or an automated market-making algorithm, constantly publishes these bid and ask prices, along with the corresponding quantities available at those prices, to an exchange or directly to clients via an RFQ platform. The difference between the bid and ask price constitutes the spread, representing the market maker’s compensation for providing liquidity and assuming inventory risk. This mechanism allows for efficient, albeit sometimes wider, execution in various market conditions.
Methodology
The strategic deployment of Two-Way Quoting in crypto systems architecture aims to enhance market depth and improve execution efficiency for institutional investors. By providing readily available prices, this methodology reduces search costs for traders and increases the probability of trade execution, particularly for large block orders that might otherwise move the market. It supports the development of robust, liquid markets for both spot crypto assets and complex options, contributing to overall market stability and price fairness.
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