In the context of Foreign Exchange (FX), a Request for Quote (RFQ) refers to a process where a market participant (such as a corporation, hedge fund, or institutional investor) requests a price or quote from a liquidity provider (like a bank or broker) for a specific currency transaction.
Here's how it works:
- Initiating the Request: A trader or investor requests a quote for a specific currency pair, typically for a large trade or complex order.
- Market Makers Provide Quotes: The liquidity providers (market makers) respond with their best bid and ask prices, which represent the price at which they are willing to buy or sell the currency pair.
- Execution: The requester evaluates the quotes and can choose the best one, often based on factors like price, execution speed, or other terms. Once a quote is selected, the trade is executed.
Key Characteristics of RFQ in FX:
- Non-committal: A request for quote is not an order; it is simply a request for price information.
- Tailored to the Trade: RFQs are often used for larger, customized, or less liquid transactions where the standard market price may not apply.
- Price Discovery: It helps the requester gauge the market and compare prices across different providers.
