Running An RFQ: How Many Dealers To Ask

In markets that trade by request-for-quote — many corporate bonds, FX forwards, interest rate swaps — a client doesn't just see a price and hit a button; they send a request to a chosen set of dealers, each dealer responds with a price, and the client picks the best one. The obvious instinct is to ask as many dealers as possible: more competing quotes should mean a tighter price. In practice, the number and choice of dealers is a genuine trade-off, not a "more is always better" decision.

Why asking more dealers isn't free

Every dealer included in an RFQ learns something: that this specific client wants to trade this specific instrument, in roughly this size, right now. A dealer who doesn't win the trade still keeps that information — and if the trade is large or the instrument thin, several dealers now know a big order is coming, which can move the market against the client even before they've traded, or let a dealer who lost the RFQ trade ahead of the client's follow-up activity. This is information leakage, and it scales with the number of dealers asked, not just the number who win.

There's also a relationship cost: dealers who are asked to quote repeatedly and never win the trade eventually notice they're being used purely as a check on their competitors' pricing ("last look" fodder), and may respond by quoting worse prices to that client over time, or deprioritizing their requests, since a dealer's own resources spent quoting a trade they never win are a loss for them too.

The trade-off in practice

For a small, liquid trade, asking three to five dealers usually captures most of the competitive benefit with limited leakage, since the trade is easy for any dealer to absorb without much market impact. For a large or illiquid trade, clients often narrow the RFQ to one or two trusted dealers, or use a name-blind protocol, precisely because the leakage risk from broadcasting a big order to many counterparties can cost more than the extra competition saves. Some clients also rotate which dealers they include over time, both to preserve relationships and to avoid any one dealer building too complete a picture of the client's typical trading patterns.