Liquidity Provider
What Is Liquidity Provider
A liquidity provider can be either a market broker or institution acting in the capacity of a professional market maker who works at both sides of a transaction.
There are various types of market participants who provide liquidity. These include central banks, commercial and investment banks, hedge funds, foreign investment managers, Forex brokers, retail traders and high net worth individuals. The top liquidity providers are called Tier 1 liquidity providers and comprise the largest investment banks with large Forex departments.
Considerations When Choosing a Liquidity Provider
One of the most important steps for a broker to look for is the overall package on offer i.e. what assets and what kind of liquidity is provided. It is vital that multi-asset liquidity is made available by the liquidity provider along with access to historical data.
It goes without saying that a liquidity provider should offer the fastest trade executions with re-quotes or slippage. This is very important in times of market news that is likely to cause a high impact.
Most liquidity providers use this aspect as a key selling point. Market depth is indeed a key consideration as it gives an indication of the liquidity and depth for a specific currency, for example.The higher the number of buy and sell orders at a particular price, the greater the market depth.
This is another key aspect and one of the foremost that companies will look for when seeking a liquidity provider. A liquidity provider’s pricing should include competitive spreads, not to mention low commissions and swaps without compromise on either side.
Last but not least, a liquidity provider should be technologically competent and able to implement FIX Protocol and other APIs, MT4/MT5 bridge connections and FIX bridges.
