May 3, 2020
Request for Quote (RFQ) trading on Paradigm has played an important role in the growth of institutional crypto-option trading by providing traders with on-demand liquidity for large size trades and the ability to electronically execute multi-leg and hedged options strategies. As a result, daily block volumes on Paradigm have reached as high as 30% of total options market volumes!
Today, we are very excited to launch our new RFQ builder that should further simplify an institutional traders’ daily workflows!
So how do I send an RFQ on Paradigm?
Simply start by clicking the blue RFQ button in any Trade Channel
Configure the RFQ for Venue, Product, Account, and Strategy Details using the available dropdowns
Clicking “Send RFQ” will directly notify the Maker within the Trade Channel of the desired Strategy
The Maker then responds with a Bid and Offer for the strategy that is active and tradable
IMPORTANT: Note that strategies are always entered and displayed in the Strategy Details table from a Buyer's perspective.
"Buying" the strategy (lifting the Maker's offer) will result in executing each leg in the same direction as per its Action entered in the Strategy Details table
"Selling" the strategy (hitting the Maker's Bid) will result in executing each leg in the opposite direction of its Action entered in the Strategy Details table
For those requiring a refresher on the benefits of an RFQ, please refer to our What is an RFQ blog
Can I add a Future leg to create a delta neutral strategy?
Yes! Simply toggle on “Add Future” in the RFQ builder and a Future leg will appear in the Strategy table.
The Taker will select the Action, Expiry and input a Delta value for this Future leg
To trade the strategy delta neutral, the Delta value is input on the Future leg in a manner that offsets the delta of the entire options position
Taker is looking to trade the June 8000/10000 Call Spread for a 100 BTC, hedged with June Futures
June 8,000 Call has a delta = 0.68
June 10,000 Call has a delta = 0.38
So the net delta of the spread is 0.30
Action: Since the net delta of the option spread = 0.30, then the offsetting delta for the position = - 0.30 which means the taker will SELL Futures against this Call Spread
Expiry: The June Future is selected to hedge the June Option Structure but the Taker is free to use another expiry as well
Delta: The delta value of -0.30 is inputted on the Future leg under the Delta column
Leg Price: Taker enters the reference Price of the Future contract used to hedge the position. The example above uses a price of $8,500 for the June Future.
Future Quantity (Calculated): Deribit only accepts Block Futures submitted through API to be in terms of USD. So based on the delta value inputted by the Taker to the RFQ builder, we calculate the equivalent USD quantity to send1
Future BTC Qty = Abs Delta Value x Leg 1 Option Quantity = 0.30 x 100 = 30 BTC
Future USD Quantity = Future BTC Quantity x Future Ref Price = 30 x 8,500 = 255,000 USD
1 This calculated Future USD Quantity we submit to Deribit for settlement, must also be in their accepted tick size of $10. So we round to the nearest $10 and recalculate the delta to ensure the integrity of all the calculations.