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Aug 30, 2021

How to choose the best liquidity provider?

 

 A liquidity provider is an institution that sends and execute an order, essentially making them market ‘makers’. They work at both ends of the market to buy or sell an asset. Their presence offers stability to the market as they ensure proper distributions to both retail and institutional investors. Having a top class liquidity provider means traders can easily get in and out of positions and offered a competitive rate,therefore highly sought after .The significance of liquidity providers in the market is further underlined by the fact that they can provide liquidity under all market conditions  such as unexpected events ,news, political instability. Liquidity providers includes central banks, major banks and hedge funds. Relationships with tier 1 liquidity providers are usually established with prime brokerage and it is very unlikely for individuals to have direct access to tier 1 liquidity providers. Hence the ideal opportunity to connect with a top tier liquidity provider is through an established prime brokerage that has a long outstanding relationship with the tier 1 liquidity providers.

How and why is it important to choose a good liquidity provider?

There are many liquidity providers out there for a brokerage to choose from ,however there are key factors to consider when selecting your liquidity provider. To best guide you in identifying your best fit , we have enlisted some points below for consideratio

1.Stability

Taking into account the years of experience and time the LP has been on the market should be a key point of consideration. It is wise to select an organization that has a proven record and outstanding reputation in the industry.

 2. Offering

As there are always new ongoing developments in the investor’s world, an LP of choice must have the ability to keep up with the demands of expansion in new assets .Hence it is better to partner with a provider that can accommodate for growing demands and has a fair flexibility.

3. Support 

It is inevitable that certain technical hiccups will occur during operations therefore ensuring around the clock support is available to you is important to safeguard a smooth and effective business operation.

4. Regulated

Mitigating your risk by opting for an LP that is regulated, will result in better transparency, security and quality service as they are pioneer in the industry and benchmarks on the best practices.

5. Pricing

In order to maximize your profit it is imperative to secure the most effective offer from an LP. Having low overnight fees and attractive spread and commission rate will lure in more traders to your platforms. However when shopping around you must not be quick to jump on the bandwagon that promises a lower quote that the market price, as this calls into questions the quality and level of service delivered .Comparing quotes from various providers can provide you with an insight on the industry’s rate for spreads, commissions, overnight fees, swaps and other relevant fees a broker can be charged.

6. Data and Price feed

Identifying where your LP servers and data centers are located will provide an overview on their proximity to the financial capitals. Whereas avoiding gaps, mismatches and delays is heavily dependent on the data and price feeds for reliable and fast execution. Price feeds must be reflective of real time prices from all relevant exchanges.

7. Execution

Gathering information on execution quality , number of rejects and slippage will assist in making an informed decision on LP you opt for. The execution offered must be timely ,at least below 100 ms without rejects. Additionally as a broker you should be able to check execution using automated software’s. Considering the volatility of the market ,it is best to test the Liquidity to ensure that variations are under control and will not hinder your business reputation.

In conclusion having a reliable liquidity provider is important for your business success and at Forexcs we are connected to the best tier 1 liquidity provider and continually expanding our partnerships. Contact us on info@forexcs.com and we would be more than happy to help you get the best guaranteed rates and boost your brokerage efficiency by offering the highest degree of liquidity to your clients.

 

 

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