What is a Forex liquidity aggregator?
Different market players always look for liquid markets because they enable profitable deals. The Forex market is predominantly liquid, like other financial spheres, and liquid markets are more competitive and provide transactions efficiently.
Data provided by the International Monetary Fund shows the foreign exchange market offers extraordinary liquidity for all major trading pairs, with a daily trading turnover of $6 billion.
What is FX liquidity and its main duty?
When it comes to financing and investing, liquidity shows the ability to convert assets into cash at any moment. If we are talking about the purchase and sale of stocks, only the CAD/USD currency pair settles on the next working day, a total of five business days.
But what about less liquid markets? Let’s take the real estate sphere as an example. You may conclude the real estate arrangement that will last for a long time.
Most FX operations are executed instantly and efficiently, with a few exceptions. The foreign exchange market has a tremendous volume, setting big orders without negatively affecting liquidity.
The main types of liquidity providers.
Liquidity aggregators are roughly divided into Level 1 and Level 2. Some top tier liquidity providers include the most powerful financial institutions, while the most prominent are Morgan Stanley, HSBC, BNP Paribas, Goldman Sachs, Barclays, etc. These providers, as mentioned above, guarantee a high level of liquidity those results in low spreads and instant order filling.
In contrast, Level 2 providers are market makers who mediate banks and set retail rates, and they provide less favorable conditions to brokerage firms and their customers.
What is a liquidity provider Forex: the extent to which an lP’s duties are defined
The Forex market, in sum, is the area where anyone can purchase and sell all fiat currencies. But there is a problem: individual investors cannot start trading without the advanced assistance of an FX broker. Brokerage companies act as mediators, providing their customers with cutting-edge tools for buying, selling, and exchanging currency pairs. As of now, over 3000 businesses are operating in the foreign exchange sphere.
As we mentioned before, major global banks, investment funds, and other firms continuously maintain Forex liquidity on a high level. Suppliers connect brokers with MMs, allowing them to fill the order books with dozens of Bid/Ask offers. But what if an FX brokerage will not partner with liquidity provider forex? In this case, the broker depends on its order book, which is filled with orders placed by registered traders.
When do those companies face barriers? First, everything hinges on the number of authorized clients on a platform. For instance, a brokerage company with 10,000 or more customers may provide a deep order book. However, only the most popular currency pairs will be highly liquid, while transactions with fewer in-demand pairs may not be filled immediately.
How to select a reliable Forex liquidity provider?
When choosing a perfect liquidity provider in forex, you should consider the whole portfolio of available assets and the liquidity being given. Suppliers must open access to the Financial Information eXchange protocol, historical data, and reliable liquidity for different currencies. Furthermore, you need to select that LP that allows you to set up an account in several currencies.
In addition, it is crucial to analyze the market’s size. The data received will show the market depth and liquidity for a chosen currency. The more various buy and sell orders, the deeper the Forex market. A liquidity aggregator must quickly react to operations that require re-quotations or price slippage, and it is imperative during periods of extreme volatility.
With little spreads, low commissions, and swaps, an LP’s pricing must be uncompromising for all market players. Brokerages should also have a reliable license to guarantee that liquidity aggregators comply with industry standards and are backed by an FX prime broker. To follow the demands of regulatory bodies, a trustworthy liquidity aggregator needs to provide tools for implementing the Financial Information eXchange protocol and other third-party instruments, in addition to MT4/MT5 bridge connections and FIX bridges.
B2Broker is a top industry Forex broker liquidity provider that provides business owners with advanced instruments to succeed on the market. All customers may benefit from the first-class and accessible liquidity for more than 80 FX currency pairs. Another notable advantage of cooperating with B2Broker is instant order execution (starting from 12 ms) and a wide variety of tools that can help boost your Forex business.
