will arm you with the information you need to know.
Forex Liquidity Distribution
In FOREX trading, it refers to the ability to buy and sell a currency pair without creating a huge impact on its exchange rate. Hence, a currency pair can be regarded as having a high level of liquidity when it can be bought or sold easily, and there is a significant amount of trading activity for that pair.
One of the prerequisites for profitable trading is the presence of a liquid market. Market liquidity impacts everything from the bid-offer spread to trade execution. It is important as it impacts how quickly you can open and close positions. Therefore, as a broker, you need to have access to the deepest liquidity pool available to cater for the needs of your traders. This leads onto the question; where do FOREX brokers get their liquidity?
Where FOREX Brokers Get Liquidity
FOREX brokers get liquidity from FOREX broker liquidity providers. Liquidity providers are market brokers or institutions who act as a professional market makers, working at both ends of the currency transactions.
Several types of market participants provide liquidity to the FOREX market including central banks, major commercial and investment banks, hedge funds, foreign investment managers, FOREX brokers, retail traders and high net worth individuals.
The top liquidity providers in the foreign exchange market are known as Tier 1 liquidity providers. These comprise of the largest investment banks with large FOREX departments who provide buy/sell quotes for the FOREX pairs that they make markets in.
An individual trader is not able to get direct access to a Tier 1 liquidity provider. Their access to the FOREX market will be provided by an online FOREX broker who tend to use at least some Tier 1 liquidity providers to fill most of their orders and will normally access an ECN/STP network to execute trades.
FOREX brokers usually connect with a number of liquidity providers to obtain better dealing rates and spreads. In doing so, they can offer their customers the best price obtainable from multiple liquidity providers.
How to Find a Liquidity Provider in FOREX
Those looking for a liquidity provider, you should look at the overall package on offer in terms of assets and the kind of liquidity being offered. It is essential that multi-asset liquidity is provided by the liquidity provider along with access to the FIX protocol and historical data. In addition, a nominated account in different currencies should ideally be an option.
Market depth is another key consideration. This provides an indication of the liquidity and depth for a particular currency. The higher the number of buy and sell orders at each price, the higher the depth of the market. A liquidity provider must be able to offer fast trade executions with re-quotes or slippage, particularly during times of high impact market news.
A liquidity provider’s price offering must also include spreads which are competitive as well as low commissions and swaps with no compromise either side.
Liquidity providers should be regulated in the same way as brokers to ensure they are operating under the industry’s best practices and that there is a prime broker backing up the liquidity provider.
Finally, a reputable liquidity provider should be able to provide an automated and robust reporting system to enable them comply with regulatory requirements and be able to implement FIX protocol and other APIs, MT4/MT5 bridge connections and FIX bridges.
As we noted earlier, the top liquidity providers in the FOREX market are known as Tier 1 liquidity providers. Technology provider, B2Broker is an expert in liquidity provision, offering single and direct market access to Tier-1 FX liquidity venues with unmatchable levels of technology, deep liquidity and speed of execution at ultra-competitive trading costs.
B2Broker ranks as one of the Top 10 Best FOREX liquidity providers in the industry, offering an easy-to-implement solution for brokers, with access to over 800 trading instruments and 7 asset classes on one single multi-currency account.
B2Broker continues to expand its liquidity distribution, currently aggregating and distributing liquidity via several distribution systems including OneZero, PrimeXM, AMTS, B2BX, Fix API, Bridge MT4, Gateway MT5, WL/GL & MT4/MT5 and WebSocket API.
Brokers and white label partners can be connected to our liquidity pool via FIX API in just 5 minutes and gain access to the deepest institutional liquidity pools in the industry, super-tight spreads and more. Contact us today.