The Role of Liquidity Provider in Brokerage Business

What is a liquidity provider? Main Aspects, Important Factors, and Benefits. It is a middleman in the securities markets.

Introduction to Liquidity Provider:

The international currency market has existed for more than one hundred years. And recently it has become very popular due to the development of modern technologies. Any user can learn how to start a forex business, register on the platform, and start the path to success. Working with highly liquid assets can bring good returns. Of course, if the trader considers all the risks and chooses an effective strategy. And most importantly, he chooses a quality broker. One of the important criteria when choosing a platform is a high speed of order execution, no spread or price slippage. Therefore, brokers try to choose a reliable liquidity provider. It is an intermediary that allows traders to access liquidity pools. Thanks to this, the trader can conclude any deal and sell or buy the selected asset almost instantly. This article will help you learn not only about the liquidity aggregator but also about the basic terms and their properties. For example, liquidity is a special financial term. It denotes the degree of ease that allows the owner to exchange them for cash. This factor is very important because it determines the attractiveness of an asset and allows you to understand whether a potential deal is attractive. A high liquidity ratio makes it clear to the user that he can buy or sell an asset at the most favorable and competitive price. Therefore, companies and brokers try to provide the highest liquidity to assets. After all, this is one of the key factors for the success of the platform and the functioning of the market as a whole. And this factor is ensured by the liquidity provider. Let’s find out what it is and why forex prime brokers strive to work only with the best partners.

Main Aspects of Liquidity Provider

A liquidity provider is a company that operates on both sides of a transaction. This means that almost any platform can be LP. Including a market broker. But in this case, it is also a market maker, and the depth of its order book depends on the number of registered clients. Most often, market makers are other market participants. These can be large world banks (or local banks), commercial funds, investment groups, and even simple but very rich people. There is a special gradation of liquidity providers in connection with this indicator. LPs working with large financial institutions are Tier1. Firms that do business with local banks and small foundations are categorized as Tier2.

Important Factors for Choosing Liquidity Provider

Choosing a quality liquidity provider is an important step for a broker that makes the first steps on this road. After all, this will make you more attractive in the eyes of a potential client. Therefore, your partner must have an excellent reputation, work around the clock and guarantee the quality of the services provided. An individual approach to clients is an added benefit. However, there are also unscrupulous companies that can harm your business. Therefore, when choosing, it is important to pay attention to the main features of a potential LP.

Available Feature Pack

It is important that the liquidity provider offers a large list of available assets. Pay attention to what currency pairs and what liquidity the company is offering. Another very important aspect is access to historical data. Additionally, nominated accounts in different currencies are a plus sign, as is the ability to accept all the leading stable tokens and cryptos for deposit and withdrawal. This is the main aspect to consider when choosing a liquidity provider.

Transaction Processing

Another factor that allows you to create forex business with maximum efficiency. Traders don’t like to wait. After all, a delay or poor-quality execution of a transaction can lead to an increased spread and losses. Reliable LP offers instant order execution (even on unpopular assets) and zero spread.

Market Depth

A key factor in helping to determine the liquidity of a selected asset. The more demand and the number of buy and sell orders, the more liquidity of the currency. Large liquidity providers have deep order books, so any pauses are also impossible.

Service cost

Every broker should pay attention to costs when creating an exchange. A reliable liquidity provider is able to offer the best conditions with minimal fees. Also, pay attention to the size of the spreads and swaps. Analyze the information and make the right decision.

Availability of a License

Obtaining a license is almost mandatory for a broker when it creates an exchange. Therefore, it is important to cooperate with licensed liquidity providers as well. The availability of documents and regulators for LP allows you to be confident in their quality of work and safety. It is best to choose a liquidity provider from the same jurisdiction as the broker.

Data Feeds

The service must provide reporting and access to important data. The broker has the right to see all prices in real-time. These quotes must be obtained from all relevant Forex exchanges and markets. Lack of such data can lead to gaps, increased spreads, and losses.

Availability of Reporting Documents

The liquidity provider must provide the broker with a convenient and high-quality reporting system. Analysis of the number of clients, executed orders, amounts, time of transactions, etc. is a useful tool for broker development. The most popular documents are trade reports, FIX documents, rollover, and swaps reports.


A point to which you also need to pay attention. The liquidity provider must have advanced and modern software, provide ample opportunities (API and FIX protocol connection), and also work with popular trading platforms (MT4/MT5).

This website uses cookies.