FX: How to choose a liquidity provider
Spoiled for choice, FX brokers have become more strategic – and selective – when it comes to choosing liquidity providers.
One of the more surprising developments in the FX market over the past few years has been the continued strength of trading platforms. At the beginning of the decade there was a feeling that brokers were fed up of working with multiple trading venues and that the number of platforms would decline. But consolidation and retrenchment have in fact been limited.
As a result, brokers are now spending weeks or even months gathering information, conducting background checks and negotiating contracts with potential liquidity providers, while assessing them against a range of criteria including reputation, reliability, liquidity depth, technology, regulatory compliance and support.
By partnering with multiple liquidity providers, brokers are tapping into a larger liquidity pool with the hope of obtaining better pricing, tighter spreads and improved trade execution.
“Another reason to have multiple liquidity providers is to gain access to a wider range of instruments, such as exotic currency pairs or less-popular asset classes, which can be provided by specialised providers from different regions,” says Andreas Kapsos, chief executive of Match-Prime Liquidity.