How to Find the Right Forex Liquidity Providers?

Investors from the forex community will consider many factors before entering live trade with a broker​. Among others, one of the few primary factors they have to scrutinize over is who the broker's liquidity provider (LP) is. As third party agencies, liquidity providers play a key role in sustaining ongoing rapid transactions in the forex market. 

Who is a Forex Liquidity Provider?

A forex liquidity provider by definition is a financial institution that acts as a middleman in the foreign exchange market. Liquidity providers act at both ends of currency transactions. They make the market by selling and buying currency pairs at certain prices. Essentially, liquidity providers are synonymous with market makers​. Their function is to facilitate trading in the FX market by providing a forex pool, so that buyers and sellers can trade easily without having to locate and deal with other individual traders.

Why is it Important to Choose the Right Liquidity Provider?

In the world of trading, one of the most important elements that enable profitable transactions is the existence of a liquid market, and the forex market is no exception to this general rule. Having greater liquidity in a financial market makes transactions flow more easily and pricing more competitive. Conversely, low levels of liquidity can cause sudden price moves in a currency pair.

Access to right liquidity providers will ensure that the broker's trades are executed instantaneously, assets are stored in secure accounts, and all margin calls are addressed properly. The choice of liquidity provider is important​ for a brokerage firm's long-term viability.

How do Liquidity Providers Work?​

The primary liquidity providers in the over the counter Interbank forex market are market makers operating at major commercial banks and some investment banks. They are generally willing to quote both a buy and sell price on a currency pair to both their professional counterparties and to non-professional client counterparties who usually ask for exchange rate quotes via their company's dealing desk.

Large commercial banks remain the principal liquidity providers in the forex market. It is important to note that they do not always quote their clients and other professional counterparties the prevailing market price. Instead, they generally quote a two-sided price based on how they anticipate currency movements will take place and what they think the counterparty might be interested in doing.

Reading the counterparty, or showing a lower bid if they think the counterparty is a seller or a higher offer if they think the counterparty is a buyer is a pretty common practice among forex market makers.

How to Choose the Best Forex Liquidity Provider?​

· Authenticity

Before choosing a liquidity provider, you must confirm whether the liquidity provider is regulated, as well as verify its credibility.

· Server location

The location of the liquidity provider servers is a major element brokers​ have to consider, which concerns order transmission latency and price slippage when making real-time market orders. You'd better ensure that servers of the liquidity provider are located in the same or similar location as those of yours.

· Multi-asset liquidity

In the modern world of today, multi-asset liquidity and a deep order book is an absolute must. Not all LPs can provide a full scope of instruments, but the more – the better.

· Execution Quality

A liquidity provider must be able to offer fast trade executions with re-quotes or slippage, particularly during times of high impact market news.

· Spread and Commissions

A liquidity provider​'s price offering must include spreads which are competitive as well as low commissions and swaps with no compromise either side.

· Data Feeds

A liquidity provider should be able to offer client data feeds which are stable and reliable. Price feeds must reflect real-time prices from all relevant exchanges as well as the interbank forex market. 

· Technology Support

Your provider needs to offer you superior trading platforms, easy onboarding and integration methods, full reporting system, along with assistance with set-ups.

What can Fazzaco Do for You?

Fazzaco's directory offers a complete list of liquidity providers that you can compare in detailed valuation to find the best fit for your trading business. 

For example, Fazzaco introduced the liquidity solutions of Topfx in detail, covering regulatory information, offers, execution, pricing, data and feed, slippage, bridge FIX API and other necessary information.

As another example, iS Prime​ provides other information such as a list of partners except the basis elements brokers need to take into consideration, which helps you to further master the credibility and capability of the potential partner.

For more information about liquidity providers and to pick the best one, please visit Fazzaco Liquidity Providers list.