By Constantine Belov

How to Choose Forex Liquidity Provider?

How to Choose Forex Liquidity Provider

The FX market, being the most liquid market today, sets the direction for the development of international financial systems. With a wide range of traded financial instruments, FX market participants constantly need a stable level of liquidity, made possible by liquidity providers. But how to find a reliable Forex liquidity provider for your business?

In this article, we will examine what a Forex liquidity provider is and the advantages of working with one. In addition, you will learn about several essential steps to find the best Forex liquidity provider.

Key Takeaways

  1. The liquidity provider is an integral part in the mechanism of supplying liquidity to the currency market and ensuring its smooth operation.
  2. The biggest advantage of using a liquidity provider is reducing the probability of spreads in trading currency pairs and other Forex instruments.

What is a Forex Liquidity Provider?

As mentioned above, the Forex market is the most liquid market today with a daily turnover of 7-8 trillion dollars, which exceeds several times the turnover of all other markets combined. It is logical that maintenance of such a high level of liquidity is a task that requires the participation of companies capable of smoothly supplying cash flows, regardless of traded instruments. This is where Forex liquidity providers come into play – specialized organizations whose financial capabilities sufficiently allow them to cover cash shortages in currency trading, which usually result in sharp quotation fluctuations within the purchase/sale of a large volume of a traded asset. 


In most cases, liquidity issues on foreign exchange markets are the responsibility of large international banking organizations that have at their disposal large amounts of free cash to replenish the liquidity pools and distribute it among financial instruments that are experiencing a decrease in liquidity, which, by the way, happens very rarely. Institutions such as hedge funds – that provide services to reduce investment risk during capital market activities – can also act as providers of Forex liquidity. Even individual investors whose personal capital size allows its use as an additional source of liquidity for low-liquid trading instruments, can sometimes play a role of liquidity providers.


Fast Fact

Liquidity is the only absolute indicator of the quality of trading activity in any asset class and in all financial markets.

Liquidity is the only absolute indicator of the quality of trading activity in any asset class and in all financial markets.

Advantages of Using Forex Liquidity Provider

Forex liquidity providers are multifunctional services that provide both financial stability within the currency market and a set of tools for effective Forex trading activities. The benefits of these tools are available to all Forex brokers regardless of whether they cater to retail traders or institutional investors. Let’s consider below the most important advantages of liquidity provider services.


1. Reducing Spread Level

Spread is one of the absolute indicators of the state of trading activity for each trading instrument, which displays the difference between the best buy and sell prices. The lower the spread, the higher the purchasing power, reflected in the opportunity to buy/sell the asset at the best market price at a particular time. By supplying Forex liquidity to brokers, liquidity providers create a balance between buyers and sellers, which levels out supply and demand, thus reducing the spread.

2. Slippage Reduction

Quite often, when trading in the market, one can observe the phenomenon when a market order placed for purchase/sale is executed at a price different from the predetermined one. This phenomenon is widespread and is called slippage of the quotation, the reason for which is the poor liquidity of the asset. It should be noted that the discrepancy to the market price at which the order was executed may be both positive and negative, depending on individual conditions in each case. One way or another, Forex liquidity providers must provide stable and reliable feeds without any spikes or gaps on the charts, which as a consequence, eliminates the occurrence of slippage. 

3. Reducing Gaps

Although over-the-counter Forex trading is available 24/7, the active trading on the Forex market occurs from Monday to Friday, resulting in a gap for various market assets. A gap occurs in situations when a lot of pending orders accumulate, which are executed by brokers only on business days, creating an imbalance in liquidity. By maintaining a consistently stable level of liquidity, providers help reduce the effects of this problem.

Important Steps to Choose Best Forex Liquidity Provider

Provider of Forex liquidity is an essential player in the Forex industry, uninterrupted operation of which ensures a consistently high flow of cash capital allocated to maintain quotations of Forex instruments. Thanks to this, any Forex broker can provide the best conditions for trading assets, including using multi-asset liquidity. Here are the steps to help you find the best Forex liquidity provider.


1. Check Provider’s Reputation

Reputation plays a vital role for any business, and when dealing with the Forex market, this aspect determines the company’s long-term success. A Forex liquidity provider must have in its arsenal the evidence of its excellent reputation, which may be expressed by positive feedback from clients, recognition by leading rating agencies, conclusions of expert organizations testing products and services, as well as providing audit services. Considering this moment is the basis for making a general decision for cooperation.

2. Study of Liquidity Services Prices

Each Forex liquidity provider, despite adhering to the same principles, offers a different range of services as part of the institutional liquidity package for Forex brokerage organizations at very different prices. While some providers offer liquidity for only one group of Forex trading instruments, others can provide liquidity for absolutely all asset classes without restrictions, which ultimately affects the cost of services. To understand exactly what your brokerage firm needs, it is worth thinking about the specifics of its work and finding the best deal.

3. Check the Technical Capabilities

When considering a liquidity provider, it is important to ensure that they have access to the most cutting-edge technologies so as to guarantee smooth execution of trading processes and optimal customer service. For more information regarding their products and services, you can visit their website or contact them directly. Ultimately, this will help you decide if engaging the provider is worth the time and effort.

4. Check Financial Stability

The liquidity provider’s financial stability ensures that its obligations to its clients will be met completely and on time. There are various methods for determining how financially stable a provider is. First, you ought to look at its financial statements because you will better grasp its general health. Another way is to contact rating agencies, so you can choose a provider whose services are of exceptional quality by using the information they provide on the businesses’ financial stability. Last but not least, contact the regulator in the nation where the service does business.


Liquidity cannot be underestimated when it comes to stable, fast, and comfortable Forex trading. Working with the best liquidity providers on the market gives the brokerage business a high chance of success, which is determined by customer satisfaction with service quality. And to make the right choice for cooperation, it is necessary to thoroughly analyze all factors which determine the company’s competence in the sphere of liquidity supply.

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