Liquidity Provider Fee Explained

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09.09.24Upd 04.09.25

The trading market consists of financial institutions, hedge funds, banks, brokers, and retail traders that make the space highly dynamic. These key players have pressing demands in some markets, making them very liquid, such as the Forex market, the busiest of them all.

This participation makes assets highly available, and at the heart of this ecosystem are liquidity providers, who ensure that trading happens smoothly and provide constant bid and ask prices.

However, this service is not free. Liquidity providers (LPs) charge certain fees for making trading accessible, especially in volatile, risky markets. These amounts vary based on the provider, structure, available asset classes, and more. Let’s explain how liquidity provider fees work and what you need to consider when building your brokerage platform.

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Key Takeaways

Liquidity providers charge various fees, including fixed and tiered commissions and spread markups.
Spreads are a common way for liquidity providers to charge their fees.
Tiered commissions are more suitable for high-frequency trading platforms that benefit from low percentages on higher volumes.

The Role of Liquidity Providers

Liquidity providers keep the market moving by providing traders with the capital to enter and exit positions. Without LPs, the markets would be much less liquid and would not function as efficiently. Some of their most crucial responsibilities include:

Maintaining two-way quotes: LPs continuously offer buy and sell prices, ensuring there is always a counterparty for a trade.
Reducing slippage: LPs fill gaps in the market with their capital, which reduces the risk of poor or delayed processing.
Providing price discovery: By tightening spreads and matching pending orders, LPs contribute to market efficiency and accurate pricing.
Facilitating execution quality: The surplus of bid and ask quotes supplied by LPs ensures that high-volume trading orders are settled without massive price swings.

As such, if there were no liquidity providers, markets would be less liquid and orders would come at higher transaction costs. Moreover, the lack of liquidity would make it difficult for traders to enter and exit positions with a slippage risk. This would make it much harder for traders to earn and eventually create market inefficiencies.

Typical Costs Charged by Liquidity Providers

LPs are the backbone of financial markets. With the advancement of financial technology, providers charge fees in different ways to align with the objectives and capabilities of brokerage firms. These fees include:

Spread markups: Instead of charging commissions, some LPs increase the bid-ask spread slightly to accommodate their fees.

For example, the raw spread can be 0.1 pip, whereas the LP adds a 0.2 pip markup, displaying 0.3 pip to the broker/end-user.

Volume-based commissions: LPs may charge a fixed amount on a given quota that must be traded on the broker’s platform.

For example, an LP may charge $20-$40 per million USD (or $2-$4 per standard lot) traded on the brokerage platform.

Tiered pricing: LPs may offer variable commissions based on volumes, with better prices for higher trading activity.

Brokers may get lower commissions of $10-$15 per million USD for completing higher monthly trading volumes.

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The Benefits of Using a Liquidity Provider

While finding a liquidity provider comes with a few challenges, including locating a reliable source, affording its services, and ensuring a flawless connection, the benefits outweigh the costs. Here’s what you can expect.

Deeper Market Access

Liquidity providers offer exposure to high-level trading opportunities as high-quality LPs consolidate and distribute quotes from Tier-1 level entities like hedge funds and banks.

This aggregation secures tight spreads under all market conditions, which instils a better trading experience and higher user retention.

Faster Execution and Lower Slippage

Liquidity providers operate through a network of ultra-fast engines and high-speed infrastructure that combine multiple liquidity pools. This leads to minimal execution delays and a lower risk of negative slippage.

This optimised condition is particularly important for high-frequency trading and institutional access that requires accuracy and speed.

Access to a Wide Range of Instruments

Collaborating with a premier liquidity provider enables brokers to expand their offerings from Forex and crypto pairs to advanced CFDs, ETFs, NDFs, and other financial products.

This gives brokers confidence to entice professional investors with varying goals, tastes, and experiences, thereby contributing to larger volumes of trading.

Better Risk Management

LPs usually provide risk management solutions, for instance, customisable margin dashboards, intelligent order routing, and reporting capabilities on a live basis. They might be included within the package or as an add-on feature.

Nevertheless, they are essential to manage exposure, mitigate risks, and ensure long-term security and stability throughout market fluctuations.

Scalability and Growth Potential

By tapping into a strong liquidity infrastructure that can enhance trading volumes and user base, brokers are able to widen their product offerings and cope with increased trading volumes.

But only through trustworthy liquidity providers are the brokers able to scale their business without affecting quality, providing firms with a competitive edge that is effective and scalable.

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Why Choose B2BROKER as a Liquidity Partner?

Financial markets move rapidly, and brokers are constantly looking for providers who offer up-to-date solutions that respond to changing demand and preferences.

Building Your Liquidity Infrastructure with B2BROKER

Planning your liquidity connectivity and integrating with reliable providers requires calculated steps. Partnering with an unreliable vendor will set you up for failure very quickly. On the contrary, B2BROKER ensures you are ready to serve your customers quickly and efficiently with this approach.

Infrastructure Setup: The first and most critical step is to determine your liquidity setup, including supported asset classes, available symbols, and quoting configuration.

B2BROKER simplifies this process with its white-label trading platform, B2TRADER, which enables you to customise your offerings, liquidity connections, and supported financial assets.

Regulatory Compliance: Ensuring compliance with financial authorities is vital for operating a brokerage and maintaining trust with clients.

B2BROKER offers advanced Know-Your-Customer verification capabilities, suitable reporting systems, and Anti-Money Laundering processes to ensure you are compliant with top jurisdictions.

Back Office Solution: Efficient management of operations, client accounts, and onboarding processes is key to building and growing a brokerage firm.

B2BROKER offers B2CORE, a robust CRM solution that enables you to oversee your business in one centralised dashboard. You can manage KYC, deposits, withdrawals, and client analytics more effectively from the back office.

Server Maintenance: Stability and speed are critical for trading platforms, especially during volatility and changing market dynamics.

B2BROKER offers dedicated hosting, 24/7 technical support, and server monitoring service that ensures uptime, low latency, and optimal performance for your brokerage infrastructure.

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Find Your Ideal Liquidity Structure

Liquidity providers set different fees for their services. For this, you are offered efficient, stable, and reliable market access to trading that is attractive to retail traders as well as to institutional investors.

While spread markups and commissions can sound expensive, they are client satisfaction and execution quality investments that keep you competitive and lead to longer-term success.

With B2BROKER, you gain access to multi-asset liquidity, ultra-tight spreads, deep order books, and other features that your brokerage needs.

Check out our offerings and find a solution that suits you! Looking for a customised solution? We’ve got a suitable offer for you.

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