Request for Quotes (RFQs) are an effective execution tool with many use cases, which may be underutilized in futures markets today. While RFQs are commonly used in options trading for price discovery or execution of newly created user-defined strategies, they are currently less frequently employed in futures markets. However, there are several uses for RFQ functionality in futures trading today, particularly for complex or nascent instruments, that may allow for improved on-demand liquidity and overall market efficiency. In this article, we will explore the fundamentals of futures RFQs and provide a guide to submitting RFQs through CME Direct.
What is an RFQ?
An RFQ is an anonymous electronic message sent in real time to all CME Globex participants to solicit quotes for specific instruments or strategies. This system has its origins in the trading floor, where traders would shout across the pit looking for a market. Today, electronic RFQs offer a more streamlined process that is instant, anonymous and allows for interaction with all Globex participants at once.
Upon receiving an RFQ, interested parties can submit bids or offers on-screen in response. While the sender of the RFQ may execute at a chosen price, they are not obligated to do so. RFQ senders are also not obligated to disclose whether they are a buyer or a seller.
RFQs are valuable in markets with a large variety of instruments and in nascent markets where liquidity is still developing. In nascent futures products, RFQs can solicit pricing in otherwise unpopulated instruments, facilitate improvements to existing liquidity, and enable large trades at a single, consolidated price.
What are the use cases for futures?
- On-demand liquidity: RFQs provide a mechanism to request additional liquidity for outright futures or spreads when no active orders exist or when market depth is insufficient. In futures markets, market makers may not be constantly present in each instrument, especially in nascent markets, throughout the day, but they are often willing to engage once a participant expresses interest, helping to create new markets or improve liquidity in existing markets.
- Competitive price discovery: RFQs may draw attention from multiple liquidity providers, allowing participants to receive quotes from multiple sources and execute at a single best price.
- Complementary to CLOB execution and block trading: RFQs can solicit CLOB liquidity and help a market participant determine whether to execute on the Globex CLOB or seek block liquidity.
How do I submit an RFQ?
To submit an RFQ on CME Direct, ensure your view includes the RFQ field and click the “Send RFQ” button. This action expresses your interest in exploring prices in one or more specific markets. You don’t need to specify if you are looking to buy or sell, or even the quantity at this stage. An RFQ submission simply indicates your intent in price discovery.
How do I respond to an RFQ?
If you want to provide a quote for a submitted RFQ, double-click on either the bid or offer, depending on your preferred position. Input the price and quantity as prompted.
Once entered, this information will populate the order book.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
