RFQ Building + Negative Pricing Overview

Published On

April 9, 2021

Builder Logic

Paradigm’s RFQ Builder is simply a window to build a trading structure. It doesn’t represent an order ticket or execution, but rather a request for information (pricing).

Within the tool, you can either use one of our predefined strategies or create your own custom strategy, especially if you prefer different spread ratios than the provided ones.


When you select a predefined strategy, the “Action” column under the “Strategy Details” section isn’t indicative of your intended execution. As the taker, you’re building the structure of your trading strategy from a “Buyer’s Perspective,” and the maker will price the structure on a two-way basis (bid and ask).

What does that mean?

Essentially, the Buyer’s Perspective acts as a spread builder. The easiest way to think about this:

  • Leg(s) assigned as a “Buy” (are quoted long): have positive premium.
  • Leg(s) assigned as a “Sell” (are quoted short): have short premium.

Below, we have more detailed examples on how the RFQ Builder works.


Buyer's Perspective

RFQs in Paradigm are built from the Buyer’s Perspective. We suggest always quoting from the Buyer’s Perspective to avoid any trade errors.

Predefined Example (Call Spread)

Taker Build

We know this structure is the more the ITM call vs. the less ITM call. So in the Paradigm RFQ Builder, the Call Spread would be:

  • “Buy” Leg: + Mar26 35k Call(More ITM Call)
  • “Sell” Leg: - Mar26 40k Call(Less ITM Call)

That is why our predefined structures automatically build it from this perspective.

Maker Response

Bid = net spread price to buy the RFQ structure. Final position would be:

  • Long: + Mar26 35k Call
  • Short: - Mar26 40k Call

Offer = net spread price to sell the RFQ structure. Final position would be:

  • Short: - Mar26 35k Call
  • Long: + Mar26 40k Call

Taker Execution on the Response

BUY (the offer) = net spread price to buy the RFQ structure. Final position would be:

  • Long: + Mar26 35k Call
  • Short: - Mar26 40k Call

SELL (the bid) = net spread price to sell the RFQ structure. Final position would be:

  • Short: - Mar26 35k Call
  • Long: + Mar26 40k Call

Seller's Perspective

You may see negative spread pricing if the RFQ is built from the Seller’s Perspective. Inverted pricing can cause confusion for both makers and takers, which is why quoting from the Buyer’s Perspective is recommended.

Custom/Negative Pricing Example (Outright built from the Seller’s Perspective)

Taker Build

Taker accidentally changes the “Action” on an outright to “Sell,” maybe incorrectly thinking this is an order ticket.

  • Example: “Sell” Leg: - Mar26 40k Call

This will ask the maker: “What is your market on this short outright structure?” The premium will be priced negatively.

Maker Response

Since the outright was built from a Seller’s Perspective (i.e. Action = Sell), the negative (-) multiplier is applied to leg prices to reflect the short structure.

Bid = price to buy the (short) RFQ structure. Final position would be:

  • Short: - Mar26 40k Call

Offer = price to sell the (short) RFQ structure. Final position would be:

  • Long: + Mar26 40k Call

Taker Execution on the Response

Since the outright was built from a Seller’s Perspective (i.e. Action = Sell), the negative (-) multiplier was applied to leg prices when the Maker priced the RFQ. So you may see negative pricing responses to reflect the short structure.

BUY (the offer) = price to buy the (short) RFQ structure. Final position would be:

  • Short: - Mar26 40k Call

SELL (the bid) = price to sell the (short) RFQ structure. Final position would be:

  • Long: + Mar26 40k Call

If you have any questions, please feel free to reach out to our Sales team. Their Telegram contact information is below, or email us at support@paradigm.co. We’re happy to assist and walk you through examples that might be helpful.

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