Every broker must have a liquidity provider. If the broker refuses to provide information about the liquidity provider, then this is a reason to doubt the reliability of the company. Moreover, new companies entering the market face serious competition. And it is important to offer potential clients the maximum list of benefits. Cooperation with the best liquidity Forex provider allows you to achieve success and make your company successful. Let’s talk about who liquidity providers are, why they are needed and why their activities are so important for an ordinary trader.
Main Information About Liquidity Provider
Liquidity is a financial term that shows how easily and quickly an asset can be exchanged for its cash equivalent. As an example, we can consider two areas that are different in terms of liquidity: the real estate market and the Forex market. Selling a property, house or land can take days, weeks, or even months until a suitable buyer is found and a deal is concluded. In the foreign exchange market, for example, when trading the USD / EUR pair, a transaction can be executed within a second. Markets with high liquidity can absorb large trades without lowering the price.
What is a liquidity provider?
A liquidity provider is a legal entity that provides more favorable exchange/trading conditions due to the existing large volumes of supply and demand. It is like a large wholesale supplier of goods. Without a liquidity provider, an ordinary forex broker would not be able to satisfy all the requests of its clients. After all, for each client’s purchase, you need to find a seller on the other side and vice versa, and it is quite difficult to achieve such ideal conditions when the buyer and seller agree on a deal with the right volume at the right price at a certain moment unless the broker is a huge bank and has stock liquidity. But, as a rule, most forex companies are intermediaries between suppliers and customers, so liquidity aggregation is indispensable.
When a forex broker has direct access to such a small Tier 2 liquidity provider, it is called an STP broker. Straight Through Processing translates to straight-through transaction processing. It is a method of withdrawing client orders directly to the liquidity provider without the intervention of a dealing desk.
When a forex broker has direct access to a large Tier1 liquidity provider (a large bank) or to a pool of several small Tier2 liquidity providers (there are also such ones), it is called a DMA broker. Direct Market Access – direct market access. When a forex broker has direct access to the liquidity pool of large Tier-1 providers, and this is ECN or interbank, such brokers are called ECN brokers.
Liquidity providers include:
- Large banks with huge capital;
- Smaller banks (intermediaries) with access to the foreign exchange market;
- Well-known hedge funds.
Brokers (both beginners and segment leaders) are trying to partner with the best crypto liquidity provider. Thanks to this, the exchange or broker can offer the buyer a tighter spread. This is an important point for users when choosing a trading platform: with a broker or exchange with good liquidity or in an illiquid market. A rational choice would be a site with good liquidity, which will increase the efficiency and profitability of transactions.
Who Can Become a Liquidity Provider
Anyone can become a Forex or crypto liquidity provider. You only need to provide access to a good pool. In the traditional stock business, liquidity is provided by market makers, which include investment companies and major trading companies, institutional investors such as large banks or hedge funds that trade huge amounts of assets. These entities provide the market with the opportunity to immediately complete a transaction without waiting for the counterparty to accept the trader’s offer to buy or sell the asset.
In most cases, liquidity providers are fully regulated and controlled by the government and act transparently, following established requirements and laws.
Providers generate liquidity by offering counter positions to traders’ market orders. They may look like they are losing money by accepting the price offered. But the best Forex liquidity provider can take these points into account in the strategy and make the company successful due to the large trading volume and in the long term.
Main Rules How to Choose the Best Liquidity Provider of Crypto
Cryptocurrency trading has its characteristics when compared to traditional markets or the Forex market. A cryptocurrency with high liquidity is attractive to investors and has good prospects for further development. Some investors believe that price is the most important tool when dealing with cryptocurrencies. So, for example, a cryptocurrency with low volatility is easier to manipulate and reduce its investment reliability, using it as an object in the pump & dump scheme, which implies a manipulative rise in the asset rate with a subsequent collapse. Let’s take a look at some aspects to help you choose the best liquidity provider crypto for your broker.
Analysis of cryptocurrency exchanges
Search the internet for the most popular cryptocurrency exchanges. Check out their ratings, reviews, legal requirements, and trading volumes. The pricing and economic efficiency of the exchange and its trading infrastructure are also important characteristics.
Your task is to choose a crypto exchange that deserves your trust. Such a platform will help you feel more confident in turbulent times with price surges and periods of calm, that is, low volatility.
Comparison of crypto exchanges: main factors
After completing your research, it is important to compare your results to determine the best cryptocurrency liquidity providers for your business. The most valuable characteristics are the number of instruments, trading conditions, the presence of margin trading, and the protocols used. Based on the results, choose the best crypto exchange provider that best suits your requirements.
The (FIX) protocol is a standard protocol that allows you to place orders, send cancellation requests, and receive the required data. The use of messages in the FIX protocol format is probably the most efficient way of communication between an exchange and its liquidity provider.
Comparison of offers from selected crypto exchanges
After comparing the mentioned characteristics of crypto exchanges, you can request their proposals. Compare the offers received by the features that are significant to you: prices, commissions, or terms of cooperation. You will need to analyze the information and choose the best liquidity provider.
B2Broker is an excellent choice for brokers. The platform offers professional service and quality mediation between the trader and Tier1 market makers. Thanks to this, traders can complete a trade almost instantly, avoiding price slippage. Moreover, B2Broker offers excellent white label solutions that allow you to operate in the market more efficiently and minimize costs. By working with B2Broker, you can take your business to the next level.