Choosing a Liquidity Provider in 2020

A liquidity provider is the portal through which brokers access the liquidity pool. Given the sensitive nature of this relationship, it is crucial for brokers to choose their liquidity provider carefully. An extra effort can go a long way to prevent painful losses in the long run. In 2020, the number of liquidity providers is expected to continue to rise, thus making the selection process more complicated for brokers. This guide lists some key points to bear in mind to help you choose a liquidity provider that meets and hopefully exceeds your requirements and expectations.

Trustworthiness

Trust and reliability are two of the most fundamental principles in trading. When it comes to the relationship between broker and liquidity provider, these concepts are no less significant. The first step in choosing a liquidity provider is to scrutinise its regulation and regulator. A trustworthy liquidity provider should be regulated by a reputable regulatory agency, such as the Securities and Futures Commission, Financial Conduct Authority and the Securities Regulatory Commission.

Feeds, liquidity access and...aggregation?

Liquidity options offered, including range and depth of access, is a significant criterion in gauging a liquidity provider. Liquidity providers are not created equal. Some only have access to a small liquidity stream while others bring multiple liquidity streams consisting of liquidity from numerous mainstream Tier-1 and Tier-2 sources. As a broker, deeper liquidity pools translate to increased competitiveness of the products you can offer to your traders. Increased competitiveness will only become increasingly significant in 2020, as traders continue to expect more options and more features from their brokers.

Furthermore, check to see if the liquidity provider offers aggregation, which is a service offered by brokers with advanced fintech resources. Aggregation allows brokers and their traders to access multiple liquidity streams through one consolidated portal, enabling convenient, competitive and well-informed transactions. With aggregation, orders are automatically spread over multiple exchanges without directly looking into each exchange, allowing for the best prices possible while keeping prices stable at all exchanges.

Execution and Network Infrastructure

It goes without saying that a reliable liquidity provider must have reliable network infrastructure. Network infrastructure directly affects trade execution, and unreliable networks disrupt transaction processing, which may lead to liability and losses for the broker. A trustworthy liquidity provider should ensure that services are delivered over a network with latency of less than 100ms without rejects or requotes.

Risk Management

It is no secret that the forex market is an extremely risky one, with malicious transaction behaviour posing a significant problem in addition to pre-existing risks stemming from market volatility. A risk management system prevents vulnerabilities caused by default order execution in market orders and pending orders. Furthermore, through constant quote monitoring and virtual liquidity, risk management systems can effectively prevent malicious transactions that take advantage of quote delays and non-market price vulnerabilities. A reliable liquidity provider should have competent risk management infrastructure integrated within their systems, enabling them to help brokers minimise losses and improve profitability.

Trade Infrastructure

The best liquidity providers have a full range of solutions that can be implemented into systems prepared for their partners. Some of these solutions include: FIX API, MetaTrader 4/MetaTrader 5 integration and MT4 gateways. As the most widely used trading platforms, MT4/MT5 integration is crucial for ensuring universal access to the market. Furthermore, FIX API is a vital tool that channels real-time market data. It facilitates the transfer of Pre-trade, Trade and Post-trade data, enabling comprehensive knowledge and recording of all transactions.

Regulated by the FCA, supported by a world-renowned fintech developer, and equipped with secure, reliable networks is London-based Doo Clearing. Furthermore, Doo Clearing provides broad-range liquidity access that encompasses Tier-1 and Tier-2 sources. With our sophisticated aggregation system, brokers and their clients will be able to experience straightforward and streamlined liquidity information without having to jump through multiple exchanges. Learn more about why Doo Clearing is the liquidity provider of the future.

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