When we talk about finances, it is clear that liquidity is one of the most crucial parts of the market. Thanks to liquidity, it is smoother and more affordable for investors to buy and sell assets since both buyers and sellers are always available to trade. FX brokers provide the primary source of essential currency liquidity for their customers. If brokers lacked access to the appropriate liquidity, traders would not be able to execute their orders.
In this article, we'll discuss why Forex brokerages need constant access to market liquidity and how they use it to give their clients better service. Then, we will describe how to get liquidity from FX liquidity providers & how to select the best liquidity provider for your business requirements. In the end, we will outline the industry's top-quality provider.
First, let's talk about why brokerages and exchanges need market liquidity.
Why Brokerages And Exchanges Need Market Liquidity
Liquidity in the Forex market defines how simple it is for market participants to purchase and sell different currencies. Liquidity is achieved when there are many buyers and sellers in a market. In contrast, the market is considered "illiquid" when there are only a few buyers or sellers present or if they are unwilling to make a transaction at proper prices.
The foreign exchange market is the most liquid in the world. This is because many market players trade daily there, either individuals or huge companies, at different prices. A high degree of Forex market liquidity allows investors to easily purchase and sell currencies, which is vital for efficient executions.
Currency exchange brokers would find it difficult to give acceptable service to their customers if they did not have quick access to vast amounts of money. What is worth noting is that brokers can obtain two types of liquidity: liquidity from the currency market and liquidity from the order book.
The Forex market's liquidity is driven by the enormous number of buyers and sellers that are continually trading in the market. This liquidity enables brokers to execute deals on behalf of their clients swiftly and at competitive pricing.
The order book is kept by each broker and contains all of their clients' buy and sell orders. The order book contributes to market liquidity by facilitating for traders the process of identifying trading partners for their transactions. After a trader places an order, the broker looks for a counterparty by checking the order book and finding the opposite order at a comparable price. This is referred to as "order matching." It ensures that all deals are completed swiftly and at close pricing.
Now, when it comes to FX brokers, many actively seek top-notch market liquidity to provide their clients with the most competitive rates. Whenever a broker has access to this form of liquidity, they may reduce the disparity between the market price in real time and what the customer is paying. The customer benefits from substantially better pricing than if the broker had to purchase or sell on the open market.
Some other reason FX brokers seek liquidity in Forex is to be able to execute deals for their customers faster than the competitors. Whenever a broker has sufficient market liquidity, he may be able to complete customer orders immediately.
A broker's liquidity can be affected by various factors, which must be taken into account.
What assets will be exchanged on your brokerage?
A broker that handles a broader range of different investment tools is more likely to have greater Forex market liquidity access than one that focuses on a limited amount of asset classes. A wide range of assets makes you more likely to obtain clients and attract them to your trading platform.
What is the volume of orders in the broker's order book?
The volume of a broker's order book might determine the amount of liquidity available to customers. A bigger order book indicates that there are far more orders to fulfill, which can contribute to improved liquidity, leading to bigger profits for everyone involved. A smaller order book, on the other hand, may make it more difficult for a broker to find counterparties for deals.
What is your capitalization?
A well-capitalized broker may provide cheaper pricing to its counterparties while still profiting.
What is the type of your clientele?
A broker's liquidity could also be affected by the type of clients they have. For example, a broker who deals with institutional clients is more likely to gain market liquidity access than one who mainly works with retail customers. This is due to the fact that institutional investors are more likely to have the funds to trade in significant amounts.
Now, let's move on and discuss how to get liquidity from FX liquidity providers and how to select the best one.
How To Get Liquidity From FX Liquidity Providers?
First, let's explain how a liquidity provider works.
A liquidity provider, or LP, is a major market player that is in charge of forming liquidity pools that include funds, banks, and other financial organizations. For smaller businesses, the pool provides rates, updates, and other needed information. Vital to remember is that high liquidity reduces spreads while eliminating the threat of pricing mismatches or market slippage.
Whenever addressing different LP types, Tier 1 and Tier 2 providers are mentioned. The biggest banking institutions representing a vast network of market makers are accessible through the first category, whereas the second type of providers includes other financial institutions.
In addition to the aforementioned two categories, there are Prime-of-Prime liquidity providers, who manage their own liquidity pools and have the most market makers. Such a pool may consist of over-the-counter participants, dark pools, and more, in addition to Tier 1 banks and Forex Prime brokers. Remember that in the Forex market, PoP liquidity pools are the strongest.
It all sounds good in theory, but how to do it in practice?
Let's say a brokerage business wants to access a substantial pool of liquidity by partnering with a liquidity provider. How does such a connection work?
- Pick a trustworthy service among the best and most reliable enterprises provided on the Forex market.
- After that, submit an application and discuss the partnership's specifics. Remember that all LPs will charge fees for trades.
- To join liquidity pools, choose the finest liquidity aggregation and liquidity venues (such as MetaTrader 4/5 or B2Trader), which were given the best reviews.
In order to select the best liquidity provider, you must check the following:
What are trading instruments available?
A deep order book and multi-asset liquidity nowadays are essential factors for a broker liquidity provider. Forex, bonds, stocks, equities, commodities, cash indices, futures indices, and ETFs should all be included on the list of market instruments. You should be given access to the whole order book by a liquidity provider via a trading platform and the FIX protocol, which allows you to view past and present tick data for every level of the order book.
Is the provider regulated and trustworthy?
Every serious liquidity provider should be in compliance with all applicable regulations and make that data available. For individuals who deposit money, unauthorized liquidity FX providers are unsafe. Additionally, it is vital to confirm the regulatory body's credibility. It's advised to choose a publicly listed company as the FX liquidity provider. You should be able to research every report, the possible partner's financial standing, and their terms as a broker.
What about the performance and reliability of transactions?
Every top-notch FX liquidity provider ought to provide fast execution and complete post-trade clarity. The operational process should be thoroughly examined, mainly when new market data is released, and unforeseen situations occur. Using automated trading software or an app that enables you to compile comprehensive information, you need to be able to assess the deal execution quickly.
Is liquidity pricing suitable for you?
Ensure your FX liquidity source has reasonable maintenance costs, spreads, and charges. Verify that there are no hidden fees associated with futures-based assets such as commodities and indices.
Forex broker liquidity providers must deliver feeds free of spikes and gaps on the charts. The prices from the various interbank foreign currency markets must be appropriately delivered. The service must include full order books displayed through FIX protocol or trading terminals provided by the FX liquidity provider, as well as accessibility to historical market data and raw data.
Don't forget to ask for market information.
A market data allocation licensing agreement must be signed by any liquidity provider who quotes from instruments relying on the offerings of specific exchanges. A number of the top liquidity providers have whole bundles of market data for their partners.
Moreover, ensure liquidity provider offers the following solutions:
- FIX protocol connection
- MT4 bridge and MT5 bridge connection
- MT4 Gateways
- Connections via serious MT4 and MT5 bridge providers
Now, let's take a closer look at the top Forex liquidity provider for your brokerage or exchange. Meet the B2Prime.
B2Broker is the company behind this excellent product. The company operates globally and has several offices on different continents. With a total of seven licenses, B2Broker is able to serve customers in more than 50 different countries and offer Forex market liquidity distribution as well as a range of other services to the Forex, crypto, and securities sectors. To increase company visibility and representation across the globe, the firm established a significant clientele of well-known international financial services companies.
Prime of Prime (PoP) multi-asset liquidity provider B2Prime delivers corporate and institutional clients access to the financial markets on a global basis under regulation. The company's main investment products are leveraged derivative CFDs (Forex, metals, commodities, shares, indices, and cryptocurrencies).
How will you benefit your customers with B2Prime?
CySEC, Cyprus' financial regulator, has created a regulatory framework for authorized financial service providers. B2Prime is subject to the strictest financial market regulatory standards as a CySEC-licensed broker, financial stability standards, customer money protection, and clarity in all operations.
Furthermore, B2Broker clients from the EU, UK, and many other jurisdictions can now benefit from EU MiFID II regulation standards. As a result, B2Broker is increasing its presence in the European Union and providing consumers the option to experience the company's extensive product and service offering while also putting itself on a faster track for global expansion thanks to an EU financial services brokerage authorization.
"The company can now provide institutional-grade liquidity to clients in over 30 countries thanks to the license. Meanwhile, every client will be able to enjoy increased security, confident in the knowledge that they are backed by a world-leading, multi-regulated technology and liquidity provider. The ambition is to make B2Prime one of the most stable and reputable financial services organizations in the Forex industry, with a high service offering as our main emphasis," says Arthur Azizov, CEO of the B2Broker group of companies
Thanks to the team full of professionals and solid experience in the Forex and crypto space, the firm will be able to provide advanced, cutting-edge technology so the clients can trade with the confidence of knowing that their trading activities are supervised by a reputable firm that adheres to the most stringent regulatory standards.
To sum it up, every broker must take into account the market's liquidity because of the impact it could have on the customers. If a broker does not have easy access to market liquidity, it is less likely that they will be able to complete their clients' transactions at reasonable rates.
However, a brokerage with sufficient connectivity to market liquidity has a higher likelihood of achieving this than one without it since it will offer competitive pricing and quick order execution. Because of this, brokers should do everything possible to choose FX liquidity solutions that can provide them accessibility to several liquidity sources.
B2Prime, the top-notch solution, can connect brokers to 115 Forex pairs, 22 crypto CFD pairs, spot metals, indices, and spot energies through the OneZero, MT5, and PrimeXM platforms.
Thanks to regulatory licenses, the B2Broker's solution is a component of the company's bigger strategic goal to have a solid position in all essential countries and to establish itself as a global FX liquidity provider. The global commercial activities reflect the company's ongoing success and growth. Therefore, collaborating with a firm that provides some of the best trading and liquidity services on the market is a highly recommended choice.