How to Use RFQ to Get Better Prices on All Your Options Trades ▴ Guide

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The Price Certainty Principle

Executing large or complex options trades requires a method that secures firm pricing and deep liquidity. A request-for-quote (RFQ) system provides a direct channel to multiple liquidity providers, inviting them to compete for your order. This process delivers executable quotes for the full size of your trade, granting you immediate price certainty and access to liquidity that may not be visible on public exchanges.

An RFQ platform allows an execution trader the ability to solicit quotes from multiple liquidity providers while also maintaining some of the anonymity that is desired when working a large order. It functions as a private auction, ensuring your trade is priced competitively based on real-time market conditions and the risk appetite of professional market makers.

A vast majority of the trades transacted in the old-school open outcry pits are done so for institutions that find presenting a trade to a number of market makers results in better execution prices than if they electronically fed the order to the market throughout the day.

The RFQ process is initiated when a trader sends a request detailing the specific instrument, size, and side of the transaction to a select group of market makers. These market makers respond with a firm bid and offer, committing to a price at which they will execute the entire trade. This dynamic introduces a competitive element that often results in price improvement over the national best bid and offer (NBBO). You gain the ability to transact significant volume at a single, confirmed price, streamlining execution and minimizing the market impact associated with breaking up a large order.

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Commanding Execution on Your Terms

Integrating an RFQ workflow into your options strategy is a deliberate move toward professional-grade execution. It allows you to shift from passively accepting screen prices to proactively seeking competitive, firm quotes for your specific trade size and structure. This is particularly effective for multi-leg strategies or for positions in less liquid single-name options, where the displayed bid-ask spread can be wide and available size is limited.

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A Framework for Price Discovery

The true function of an RFQ is to generate a competitive environment for your order. By simultaneously requesting quotes from several liquidity providers, you create a dynamic where each participant is incentivized to provide their best price to win the trade. This process is designed to narrow the effective spread you pay, directly impacting your cost basis and potential profitability. The ability to source liquidity from multiple dealers at once overcomes the fragmented nature of the options market, where the best price and size may be scattered across 16 different exchanges.

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Executing Complex Spreads with Precision

RFQ systems are exceptionally well-suited for complex multi-leg options strategies, such as vertical spreads, collars, or iron condors. Instead of executing each leg separately and incurring multiple transaction costs while racing against price movements, an RFQ allows you to request a single price for the entire package. For instance, a trader looking to execute a vertical spread on an ETF can submit one RFQ for the combined position. The responding market makers will provide a net price for the spread, simplifying the execution and removing the risk of a poor fill on one leg affecting the overall trade structure.

Consider the execution of a bull call spread:

Trade Assembly ▴ You define the entire spread ▴ for example, buying one 146 strike call and selling one 150 strike call ▴ within the RFQ ticket.
Dealer Selection ▴ You select a list of trusted market makers to receive your request. The counterparty will choose the optimal list based on past experience and hit-ratios.
Competitive Bidding ▴ The selected dealers respond with a single, firm price for the net debit or credit of the spread. For example, a market maker might quote a net debit of 1.88 for the spread.
Execution Decision ▴ You can then compare these firm quotes to the current market offer of 1.92, which is derived from the individual leg prices on the public exchanges, and execute at the improved price.

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Securing Size in Illiquid Markets

One of the primary challenges in options trading is finding sufficient liquidity, especially for large orders or in contracts outside of the most active indices. What is displayed on the screen often represents a fraction of the liquidity a market maker is willing to provide. An RFQ allows you to privately signal your full intended trade size to these professionals, who can then price the order with the confidence that they are competing for the entire block. This access to deeper, undisclosed liquidity pools is a significant operational advantage, allowing you to establish or exit large positions with minimal price slippage.

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The Strategic Liquidity Advantage

Mastering the RFQ process elevates your trading from a series of individual transactions to a strategic portfolio management activity. It provides a mechanism to manage your execution costs with the same rigor you apply to your trade selection. This becomes a durable edge, compounding over time as you consistently achieve better pricing across all your options trades. The consistent achievement of price improvement directly translates into a higher net return on your strategies.

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Building a Portfolio of Better Prices

The benefits of RFQ are not isolated to a single trade. By systematically using this method for all significant options positions, you are building a portfolio with a structurally lower cost basis. This discipline is a hallmark of institutional trading. The ability to consistently trade at prices better than the public NBBO is a measurable form of alpha.

Over dozens or hundreds of trades, the accumulated savings from reduced slippage and tighter spreads can significantly enhance overall portfolio performance. This method allows you to translate your market views into positions more efficiently, preserving capital and maximizing the profit potential of each strategic decision.

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Advanced Risk Management Applications

Beyond simple price improvement, the RFQ process is a powerful tool for sophisticated risk management. For portfolio managers looking to hedge a large underlying stock position with a collar (selling a call and buying a put), an RFQ is the ideal execution method. It allows the manager to request a net price for the entire collar structure, often enabling them to establish the hedge at a zero or even positive cost basis.

The certainty of a single fill for both legs ensures the hedge is perfectly implemented, removing the execution risk of legging into the position in open markets. This same principle applies to complex, multi-leg volatility and dispersion trades, where precise execution is paramount to the success of the strategy.

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Execution as a Differentiator

Your ability to source liquidity and secure pricing is a direct reflection of your market sophistication. The tools of professional traders are no longer out of reach. By integrating a disciplined, competitive quoting process into your workflow, you are fundamentally changing your relationship with the market. You are moving from a price taker to a price maker, actively engineering better outcomes for your portfolio and turning the mechanics of execution into a source of competitive advantage.