The financial trading industry involves a huge number of participants and intermediaries, such as brokers, investors, banks, liquidity providers, software developers and more, that make markets more efficient and trading more seamless.

Considering the significant amount of money circulating between platforms and markets, liquidity providers play an important role in trade facilitation and improvement, making the working of brokers more efficient, and allowing them to offer more to the end-user or investor.

Let’s review the role of these financial firms in the trading market and how you can locate a reliable partner.

Why You Need a Liquidity Provider?

Liquidity is a crucial term in the trading world, referring to the ease at which positions can be executed, which pertains to the availability of tradeable securities and market participants. 

When there is a sufficient supply of financial instruments, trading becomes faster, with a tight spread range and a minimum slippage chance.

Brokerage firms connect their platforms with various pools and sources to serve multi-asset investors and traders, especially when executing a large number of assets or capital.

Characteristics of a Reliable LP

Finding a provider company is not difficult, thanks to the huge number of financial institutions and investment banks offering similar services. 

However, locating a suitable one for you can be challenging. Here is what you need to know to find the best liquidity provider for your brokerage firm.

Regulatory Compliance

LPs must adhere to various regulatory requirements, ensuring the safety of their transactions and non-involvement in any money laundering or suspicious activity.

Market Depth

Check out the supported markets and instruments by the provider and ensure there’s enough liquidity in the order book to support your clientele.

Communication Styles

Evaluate their communication and ensure there is an ongoing update regarding liquidity patterns and if any change in volume and flow is expected.

Prices

LPs charge different fees for their services, varying between the level of support and service they may offer. Review their pricing plans and check out if they have customisation for limited budgets.

Final Remarks

In a nutshell, liquidity provision is a key aspect of trading, supporting brokers with financial and technological means to launch and operate their businesses.

Ensure making a checklist of your specific requirements, compare them to the LP service and settle for those that help you meet and exceed your customers’ expectations.