Month: January 2016

Choosing the Best FX Liquidity Provider I

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Part I: Spreads, execution and latency

Written by Fred Scala


A lot of people think the tightest prices available will give them the best liquidity stream. That is not always true. Depending on your business the best stream might not have the tightest prices. When you speak with an LP about which streams might best suit your Forex business needs, remember that there are three main components of the price: spread, execution and latency. We normally say you can have two out of the three but it is very rare to have all three. If you want very tight prices you may incur higher latency or higher rejects. If fill rates are most important you may see slightly higher latency or slightly wider prices and if speed is your major concern then fill rates or spread will probably suffer.


When clients or prospects  look at a demo stream they only have access to one component of the price, the spread, they have no idea about latency or fill rates, even if the client is trading a demo account those fx trades will never go to an LP on the backend so there will never be any latency or rejects. In a demo stream all trades are confirmed as executed immediately, this is a very important point to understand. It gives you a meaningless comparison unless you are in a live environment.


In order to find the proper liquidity provider for your business you need to examine your flow and determine what factors are most important. If you have a high frequency brokerage model then latency and fill rates will be high in your ranking, if you cater to   macro traders then spreads and fill rates will be more important in your decision.


The best solution is to partner with an LP that can provide multiple streams and allow you to segregate your clients based on their needs. If you only have one stream to an LP then you will only have one solution. If you partner with an LP that can provide a tight stream for one set of clients, a stream with a high fill rate for another part of your client base and a third stream for low latency needs you will be able to segment the flow properly and avoid future issues.


Best LP Part I


I hope I was able to offer some insight into what determines a better liquidity stream and liquidity partner. If you have any further questions on this topic or other areas please contact me at Read Part II here