Who are Liquidity Providers?

Liquidity providers (LPs) are large financial institutions, multinational banks and prime brokerage companies that supply the market with tradable assets, making trading faster and more efficient.

Liquidity providers offer their services to a wide range of trading market facilitators, such as brokerage companies and institutional investors, who benefit from the broad liquidity choice offered by LPs.

How Do You Define Liquidity?

Liquidity is a crucial aspect of the trading world, which refers to the ease with which a market order can be executed, contributing to the overall market well-being. High liquidity means that a buy/sell order is processed at a tight spread range and low slippage rate, minimising the transaction costs and increasing the price accuracy. When a trader buys/sells a particular security, the order is executed with the help of an ECN broker, who processes the operation and executes it at a low price and tight spread offered by the liquidity-providing financial institution. Then, the order is finalised and placed in the market. Forex liquidity providers offer deep market liquidity through a network of tier-1 banks, investment firms, hedge funds and liquidity pools that provide tradable securities. Therefore, high liquidity is associated with a highly efficient market, where many traders are willing to take the other side of the transaction and instruments are sufficiently supplied.

How Do You Find The Best Liquidity Provider?

Choosing the best liquidity provider entails conducting thorough research on the products they offer, execution speed, legality, trading options offered and more. Liquidity providers offer access to trading markets at different ranges. Some liquidity providers for FX trading supply a huge amount of currency pairs, while others may give deep access to cryptocurrencies or stocks. Therefore, choosing a suitable LP depends on the business needs and the desired access to financial markets. Ensuring the legality of the crypto liquidity provider is key for business durability. LPs work with a network of financial institutions and banks that are strictly regulated by their nature. Therefore, having a fully licenced provider is key to ensuring a consistent liquidity flow to different financial instruments.