How to choose a liquidity provider

How to choose a liquidity provider | Eurocapital

Matthew Kent

The trading industry, alongside fintech as a whole, has grown and progressed significantly since 2020. In the last year or so, brokerages and exchanges have experienced record-breaking volumes and floods of new traders, driven largely by the COVID-19 pandemic, among other factors. With this being the case, the need for robust liquidity providers has amplified.

Choosing an LP when so many are grappling for your attention can be a challenging process. As liquidity is one of the critical components – if not the critical component – for the success of a brokerage or an exchange, you must evaluate and select the right provider carefully.

Every brokerage has their own specific needs when it comes to finding the right LP. However, there are some common critical aspects to consider in the LP selection process.

“A ‘one-size-fits-all’ approach is just not right when it comes to LPs.”

Key factors to consider

  • Authenticity. Trust is built with consistency; a trustworthy, reliable LP offers transparency and visibility at every stage. What’s more, your LP should demonstrate its due diligence and a full compliance review. Finally, for quality assurance, your LP should also follow industry best practices.
  • Market depth. Combining a range of pricing sources offers consistent liquidity and unparalleled market depth. In addition, diverse liquidity options can help to ensure more than sufficient liquidity.
  • What’s on offer. A wide range of instruments, platforms and technologies are a good sign that an LP delivers full-circle solutions. Connectivity and direct market access to multi-asset classes are also important to take into account. Finally, enhanced spreads along with competitive pricing complete the checkbox list of the offering.

  • Flexibility.  A ‘one-size-fits-all’ approach is just not right when it comes to LPs. Instead, a reliable LP should explore your objectives with you before designing and customising the features you’d expect to be tailored in a bespoke trading environment.

  • Connectivity. A liquidity provider should be able to implement FIX protocol and other APIs, MT4/MT5 bridge connections and FIX bridges. 

  • Execution. Ultra-low latency and uninterrupted trading flow ensure maximum efficiency and fast execution. In addition, a reliable LP should offer trading transparency as well as time priority execution.
  • Strong partnerships. Strong partnerships with top tier 1 and non-bank sources, institutional networking, highly specialised third-party technologies, and credible relationships with credible partners lay solid foundations.
  • Support. Responsive client support and regular contact should be a requirement to ensure everything goes as planned. 

 

Of course, the list is not exhaustive; the potential checkpoints to add could be infinite. At Eurocapital, our approach is as holistic as possible, paying close attention to the details involved in building, tailoring and evolving the best solutions for your business.

 

If you want to dive into the deepest pool of top-of-book liquidity, just contact us, and we will be happy to work with you to create the bespoke trading environment you’re looking for.

Disclaimer: Eurocapital doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information provided here, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. We advise any readers of this content to seek their own advice.

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©2021 Eurocapital. All Rights Reserved.