What is a Liquidity Provider and Why Do Brokers Require One?

What is a Liquidity Provider and Why Do Brokers Require One?

For those who are looking to launch their own forex brokerages, many terms and phrases can appear intimidating at times. The term liquidity, for example, can often conjure up images of waterfalls or rivers. New entrepreneurs to the forex industry might ask why is liquidity important when starting my own forex broker?

The Definition of Liquidity

A good place to start is to define exactly what liquidity stands for. As you’ll shortly notice, the term liquidity is not as intimidating as it may appear at first glance. A basic definition of liquidity is the pricing and order execution that each forex broker uses to operate the business.

Let’s consider a simple analogy to help out with the definition of liquidity. Imagine turning on the water in the bathroom, only to find that the faucet is not working. This is what happens at a forex broker that doesn’t have a liquidity connection; when you look at the client terminal, you’ll see that prices simply will not move.

But liquidity is more than just pricing; it’s also the order execution behind the rates you see flashing on your screen. Simply put, order execution is what happens when a trader buys or sells any forex pair, stock, or CFD. Once the order is placed in the system, it must be sent to either a bank, hedge fund, or other clearing party that will then process the request. Once the order is confirmed, a confirmation is sent and the trader can view the progress of the order in their client terminal. What’s amazing is that all of this will happen in less than a second!

Selecting the Right Liquidity Provider for Your Forex Broker

Considering that your brokerage cannot operate without liquidity, it’s crucial to partner with a trusted and reliable liquidity provider. If you are new to this business and require guidance in choosing a liquidity provider that best meets your goals and needs, don’t hesitate to contact us. Our industry knowledge, expertise, and track record of success make us the ideal partner to guide you in launching your own brokerage. Contact us today to learn more!