5 Things You May Be Missing When Selecting Your Liquidity Provider

Forex brokerages come in all shapes and sizes, and their respective needs depend on many different and unique factors. Some brokers seek only a steady, reliable source of liquidity, while others look for the entire set of technology solutions and infrastructure enhancements in addition to just a stable price feed. At Doo Clearing, we have encountered and assisted up-and-coming brokers that require the A-to-Z of resources and explanations, mid-range, price-conscious brokerages that seek the best deals, and large, multi-national brokerages that require RPFs, through their journey to select a liquidity partner.

Firstly, let’s examine why liquidity providers are vital and required by forex brokers of any and all sizes. All forex brokerages regardless of size or business model require 

Institutional liquidity for many reasons, such as to seek a stable price feed as a primary/backup, or to aggregate their stream to reduce spreads.

What are the most vital criteria commonly overlooked by forex brokers?

When looking for a liquidity provider, the following evaluation criteria which may help your business scale, grow and succeed.

From our experience and knowledge of the forex playing field, these are the essentials that any trustworthy and competent liquidity provider should offer as a given:

1. Access to Tier 1 bank liquidity sources.

2. The ability to deliver an executable price stream via proprietary software. Firms that deploy proprietary technology are able to deliver raw prices as there are no charges from the banks. This means that the liquidity provider can offer raw pricing. If the software being used is one of the commercially available technologies used to deliver prices, it is likely that banks are being charged to be able to participate in aggregation. This also applies liquidity providers that provide MT4/MT5 bridge connections in addition to liquidity and technology bundled in one, which do not have any additional charges for the bridge.

3. The ability to customise liquidity – to handle small tickets, block trading (fine tuning of top of the book and order types). This includes the ability to offer segregated accounts for additional protection.

4. FIX API and reporting API connectivity to integrate with back-office and other systems.

5. Regulation. It is important to know that the liquidity provider, who will be acting as the counterparty to your trading activity, adheres to some form of regulatory capital requirements, operational policies and procedures, conducts an AML/KYC regimen and has a Disaster Recovery procedure in place. Without oversight from a competent regulatory body, the liquidity provider is essentially able to run their operation as they see fit, potentially contrary to what regulatory standards dictate. Enquire about the regulator that has authorised the liquidity provider to execute forex activities. Be sure to cross-reference their claims with that regulator’s registry to verify the license type and the permissions they have been granted.

If you have questions or comments regarding this topic and forex liquidity in general, please contact us – we are always here to help you

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Web: www.dooclearing.co.uk

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