What is Request-For-Quote (RFQ) Trading?
Request-For-Quote (RFQ) trading is a method of executing trades where traders request direct quotes from market makers instead of placing orders into a public orderbook. RFQ trading is common in traditional finance for instruments that are less liquid or more complex, such as bonds and structured products. RFQ is also commonly used for large block trades, even in liquid markets, to avoid slippage.
Unlike an orderbook trading platform, where traders interact with a constantly fluctuating list of bids and asks, RFQ platforms provide users with a single, all-in price for the entirety of their desired trade quantity. This “'all-or-nothing” execution simplifies the trading process, making it easier for traders to determine their total execution costs and avoid the complexities of navigating orderbook depth, slippage, and changing dynamics.
For market makers, RFQ offers the advantage of knowing their counterparty, allowing for more informed pricing and risk management. This is in stark contrast to the anonymity of a CLOB, where market makers operate with extremely limited information about the traders they are interacting with.
RFQ Trading on Omni
On Omni, RFQ trading is the only method of executing trades. This means that all users interact directly with the Omni Liquidity Provider (OLP) to receive price quotes, rather than trading against a traditional orderbook or a set of competing external market makers.
While RFQ systems can offer incredible customization of terms (e.g. custom margin/liquidation rules, price feeds, etc), Omni standardizes terms for all trades. The RFQ flow on Omni is as follows:
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The taker (user) creates an RFQ by filling out the Order Entry Form on the Omni frontend. For example, a buy order of 1 ETH at 50x leverage.
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The Omni Liquidity Provider (OLP), as the only market maker on Omni, responds with a quote. This quote consists exclusively of a price (bid or ask, depending on the user's intended direction), as all other parameters of the trade (settlement pool, margin requirements, liquidation penalties, etc.) are pre-set as part of Omni’s standard terms.
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If the quoted price is acceptable, the taker accepts the quote to begin the order execution process.
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OLP has a last look before the trade is booked and cleared. At this point, OLP will check the user's trade against its risk limits and ensure it can safely finalize the trade. Once OLP's last look has passed, collateral is moved from the OLP vault into the user's settlement pool (if necessary), and the trade is booked and cleared.
While this process contains multiple steps, the entire flow is completed in seconds. A user simply inputs their desired quantity in the Order Entry Form, checks the price they are offered by OLP, and accepts the quote to enter a trade.
How Does Omni’s RFQ System Benefit Users?
Omni's RFQ system offers several distinct advantages for traders: simplicity, a wider set of listings, and improved ability for OLP to protect itself (which translates into better spreads for end users).
First, Omni’s implementation of RFQ significantly simplifies the trading experience. Users receive a single, all-in price quote with standard terms for their desired position, eliminating the complexities of navigating orderbooks or setting custom terms. This "all-or-nothing" execution makes it easier to estimate all-in execution costs and helps avoid the need for advanced order types like icebergs. OLP essentially handles the complexities of orderbook management and hedging behind the scenes, providing users with a fair price for their entire trade upfront.
Second, Omni’s RFQ model is particularly well-suited for long-tail assets, mirroring RFQ’s use in traditional finance for less liquid markets. By adopting RFQ, Omni can list a wider range of markets, offering users access to assets/products that are difficult to make liquid on traditional orderbook exchanges. This approach benefits users by ensuring more accurate execution costs, deeper market liquidity, and thus tighter spreads on long-tail assets.
Finally, Omni's use of RFQ allows OLP to offer tighter spreads by enhancing platform safety. The ability to identify its counterparties enables OLP to implement more informed risk management, protecting the platform from potentially harmful trading activity such as market manipulation or toxic flow. This level of transparency and control, which is not possible in a CLOB where market makers operate with very limited information about their counterparty, allows OLP to confidently provide tighter spreads to users.
Conclusion
RFQ trading is fundamental to the experience of Omni, and marks a significant departure from the traditional orderbook model used by other trading platforms. With OLP serving as the sole market maker on platform, Omni simplifies trade execution into a straightforward request-and-response process. This approach, which is already prevalent in traditional finance for complex and illiquid markets, allows Omni to offer a unique trading environment specifically tailored to support a wide range of markets at tight spreads.
For Omni users, RFQ translates into tangible benefits. It simplifies trading by providing a single, all-in price, removing the complexities of order book navigation. RFQ also enables access to a broader range of assets, particularly long-tail markets, that are challenging to make liquid in orderbooks. The RFQ system's effectiveness in allowing OLP to identify counterparties leads to more efficient risk management and a safer platform, ultimately translating into tighter spreads for traders on Omni.
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