Financial markets are a very attractive investment segment. But newcomers face a serious clash for customers. And it is important to provide the largest list of services in order to break out into the leaders of the segment and become one of the forex prime brokers. Otherwise, it will fail and go bankrupt. Working with a reliable and quality liquidity aggregator is one of the essential success factors.
Why is Liquidity Important to the Trader and the Exchange?
Every newbie broker must attract a large number of clients. After all, they bring profit to the platform by paying a commission. And the more traders are interested in cooperation, the better for the company.
Also, traders – an effective start depends on the speed of execution of the transaction. It is important for the user that his payments go through as quickly as possible, and the order is executed in a matter of milliseconds. In case of high liquidity of the asset, it can be quickly sold or bought at the market price. There are no delays or slippage in prices, which allows you to use the chosen strategy correctly. Conversely, the minimum liquidity of the asset negatively affects the efficiency of transactions. Because users cannot quickly sell or buy a selected asset: be its fiat currency, cryptocurrency, stocks, CFDs, ETFs, commodities, etc.
Therefore, brokers try to provide a high level of liquidity that is attractive to potential clients. And here they are helped by liquidity providers, which open up access to large pools of liquidity.
Basic Information about Liquidity Pools
Most often, liquidity pools are remembered in the context of the Forex market. But this concept is relevant for other markets as well. In particular, the cryptocurrency market. But there are slight differences here.
Let’s start by looking at the Forex market. Here, market makers form large pools of liquidity. Thanks to this, the broker’s order book has great depth, which allows you to execute any order almost instantly. Tier1 liquidity provider works with major market makers. Thanks to it, the broker gets access to the pools of world banks, serious investment funds (Barclays, Morgan JP, AIG). There are also local Tier2 liquidity providers. They partner with small local banks or pools of small companies.
The broker should pay attention to the size of the liquidity pool. The more, the deeper the order book. This is good, because the speed of order execution becomes minimal, and the broker can quickly execute almost any order.
But if we are talking about brokers who decided to create a crypto exchange, then here the concept of a liquidity pool becomes different. Because the liquidity pool consists of coins fixed in smart contracts. This means that users buy cryptocurrency directly from liquidity pools. And the process itself becomes different because here traders do not need to create a buy order. Market makers act automatically, accept payments and instantly fulfill the request. And it is important to create a pool that can meet user demand. It is created by liquidity providers from assets that have a low user base.
The Importance of Partnering with a Quality Liquidity Provider
So, it is important to pay careful attention to the start-up stage. Because brokers are facing serious competition here. And a minimal mistake can lead to loss of potential customers, negative reputation, and negative reviews. A successful start is extremely important because the first impression is worth a lot. It will be very difficult to fix the situation afterward.And it is important to choose a quality liquidity provider. Because a reliable LP provides access to large pools of liquidity and ensures that clients’ orders are executed almost instantly. This approach improves efficiency and avoids price slippage. For digital assets, a reliable liquidity provider is also an essential solution. Because the liquidity pool is important for users trading unpopular assets.