• Introduction
• Brokers
• Liquidity providers
• How Brokers and Liquidity Providers Work Together
• Collaboration examples between brokers and liquidity providers
• Benefits for both parties
• Benefits of Working with a Broker and Liquidity Provider
• Conclusion
• FAQs

Introduction

There are two key players you can't bypass in the foreign exchange (FX) market, the liquidity providers and brokers. These parties' collaboration ensures a liquid and efficient FX market for traders.

Liquidity providers ensure that the market has tradable currency pairs and provide pricing information. While brokers link traders to liquidity providers and execute trades on behalf of the traders.

In this blog post, we'll shed more light on how these parties work together to ease trading and provide you with a deeper understanding of the interplay between these parties and the impact it has on trading activities.

Brokers

Brokers are individuals or companies who represent traders to buy and sell assets. Think of them as intermediaries, facilitating transactions between traders and LPs. Without them, traders would encounter difficulty with transactions and the smooth flow of trade. Every broker needs to obtain a license. They are regulated by financial regulatory bodies, there are over 100 regulatory bodies globally, these bodies have differing degrees of focus and authority. In the US there's the Securities and Exchange Commission (SEC), in Europe, there's the European Securities and Markets Authority (ESMA), and in the UK there's the Financial Conduct Authority.

Their key roles in the market can be classified into these four functions.

Provide easy market access.  Online brokers help to make markets easily accessible, they offer traders an accessible environment or a trading platform to easily exchange assets. Their absence would lead to difficulty in participating in trading activities.

Trade execution. They are tasked with finding counterparties for traders, they also make sure the trades executed are done at a favourable market price.

Leverage provision. They offer leverage to allow traders to operate with more capital than they have. This could amplify potential returns— gains or losses.

Price quoting. Through specialized software, brokers monitor the market and give clients real-time and accurate pricing information.

Liquidity providers

Liquidity providers (or liquidity suppliers) are financial bodies that hold large pools of assets and supply the needed liquidity. When LPs provide or increase liquidity for brokers and the market, trading costs are reduced, in return it provides a positive impact on the financial market.

The key roles of liquidity providers in the market can be classified into these five (5) functions;

Supplying currency. LPs provide a pool of assets (stocks, currencies, etc.) open for buying and selling, ensuring smooth transactions without significant price fluctuations.

Pricing. LPs continually quote bids and ask prices, they act as market makers and set reference points for other participants. This transparency facilitates efficient price discovery.

Order execution. LPs fulfil buy and sell orders promptly, even in high-volume conditions. This permits traders to enter and exit positions quickly and efficiently.

Risk management. LPs minimize market risk by taking the opposite side of trades, mitigating volatility and ensuring market stability. They protect both themselves and other participants.

Market making. LPs proactively add orders to the order book, even when there's no immediate buyer or seller, this ensures continuous market activity and facilitate smoother price discovery.

How Brokers and Liquidity Providers Work Together

The collaboration between these parties can be viewed as a symbiotic dance, we have classified this dance into four facets.

The broker seeks liquidity. Whenever a trader places an order with a broker, the broker requires a counterparty to execute it. This is when they reach out to their network of LPs to seek the best price and execution for their client.

The LP meets the demand. As soon as the LP is contacted, the LP analyze the order and market conditions. If the order can be profitably fulfilled they agree to act as the counterparty, that is to buy or sell the asset.

Trade execution. After the parties agree, the broker forwards the LP's offer to the trader. Once the price and terms are satisfactory, the trade is executed, and the asset is moved.

Sharing the pie. To sum up the symbiotic dance, each party take their share of the earned fee. Online brokers charge the trader a commission while LPs earn profits when they buy or sell assets at profitable prices. No losses, each party goes home happy.

Collaboration examples between brokers and liquidity providers

We have given three examples to illustrate the collaboration between these parties.

ECN Brokers. Electronic Communication Networks (ECNs) connect traders to numerous LPs, they offer competitive prices and transparent execution.

Market Maker Model. Here the broker itself acts as the LP, in this model, the broker takes the opposite side of the trade. This model proposes faster execution however, it raises possible conflicts of interest.

Hybrid Models. Brokers can blend components of the previous models, they offer ECN access for some assets while they front as market makers for other traders.

Benefits for both parties

When both parties are on the same page, the relationship between the two is usually beneficial.

For the brokers.

Access to Liquidity. A partnership with LPs makes it easier for brokers to fulfil various trade proposals, bringing in more clients and improving their business.

Competitive Pricing. When online brokers access multiple LPs, they can offer competitive prices to traders which enhances increased customer satisfaction and loyalty.

Efficiency. To streamline trade execution, automated systems and technology facilitate rapid and seamless communication between brokers and LPs.

For LPs.

Increased Trading Volume. These parties' partnership expands their reach to more prospective buyers and sellers, this helps to boost trading volume and profitability.

Diversification. When LPs spread their assets across numerous brokers and markets they can diversify financial risk.

Reduced Costs. These parties' collaboration could reduce the LP's organizational duties and expenditures tied to controlling individual orders.

Benefits of Working with a Broker and Liquidity Provider

The partnership between these parties results into numerous benefits to traders, it enables them to navigate complicated markets with improved efficiency and profitability. Let's dive into the key areas where this collaboration shines.

Access to Capital. This partnership helps to expand the broker's capital base and allows them to offer bigger trade sizes and cater to institutional clients with significant investment needs. It also broadens LPs' reach through verified broker networks, hereby granting the LPs access to a wider puddle of potential clients.

Competitive Pricing. Brokers' partnerships with LPs offer competitive prices as they can leverage beneficial rates to attract clients. Through brokers, LPs get restrained channels to reach clients who trade with larger volumes thereby generating more fees. This motivates the LPs to offer competitive rates to secure a valuable partnership.

Risk Management. When brokers partner with reputed LPs it enhances overall financial stability and their clients are secure and rest assured. LPs partnership with broker allows them to manage their positions and exposure more effectively and this leads to a stable and efficient market.

Portfolio Diversification. Brokers' partnership with different LPs grants access to a wider range of assets and instruments which allows brokers to offer various investment options to their clients. LPs' partnership with brokers helps them access exposure to untouched asset classes, which enables them to expand their reach.

Access to Research. LPs give access to high-quality research and market analysis. When brokers leverage on this it offers valuable insights and investment guides they could offer their clients. When LPs partner with brokers they can disperse their research to a wider audience, strengthen their market presence, and attract new clients.

Conclusion

From this blog post, you have seen the way brokers and liquidity providers work together and the importance of their collaboration. Brokers provide easy market access, facilitate trade execution, offer leverage to allow buyers to operate, and monitor pricing to give price information. Liquidity providers supply currency to ensure smooth transactions, they quote bid and ask prices, act as market makers, execute orders efficiently, and minimize market risks.

Without their collaboration, there would be difficulty in making trading decisions. With the help of their collaboration traders can easily navigate the complicated market. They keep prices competitive, they grant easy access to capital and very importantly, they curb risks. To sum it up, as long as the brokers and LPs are on a good page, the traders and other stakeholders are in safe hands.

Frequently Asked Questions

Q1: What is the role of brokers in the Forex market?

Brokers act as intermediaries in the market. They connect traders to an expansive interbank market, they facilitate currency exchange and trade execution.

Q2: How does the collaboration between brokers and liquidity providers benefit traders?

The collaboration between brokers and LPs enhances market depth, ensures better pricing and lessens slippage.

Q3: Why is access to capital crucial for traders and investors in the Forex market?

Access to capital is crucial for traders and investors in the Forex market because it facilitates large trade sizes which could lead to larger returns. It provides flexibility to respond to market opportunities.

Q4: How do liquidity providers contribute to pricing in the market?

Liquidity providers could contribute to pricing by providing price quotes, contributing to the structure of market exchange rates.

Q5: What advantages does portfolio diversification offer to investors?

Portfolio diversification lessens overall risk by minimizing losses from unfavourable junctures in any single currency. They also spread exposure across various currencies and economies. And capitalize on opportunities in different markets which could boost returns.

• MetaQuotes and MetaTrader
• MetaTrader 4 and 5: sought-after features missing
• TickTrader as a MetaTrader alternative
  • Instruments
  • Account types
  • Order types
  • API
  • Trading Terminal Features
  • White Label Sub Licensing Option
  • Algorithmic Trading Features
  • Tech Support
• Comparison with other popular platforms
  • Match-Trader
  • cTrader
  • ThinkTrader
• Comparison table: TickTrader, MetaTrader platforms and MetaTrader competitors
• Final thoughts

In the world of digital brokerages, MetaTrader has long been the go-to trading platform. MetaQuotes, the company behind the platform, has been in business for over 20 years and offers a range of products to support online trading. MetaTrader 4 and 5 are the most well-known of these products, and they have dominated the market for years. However, as with any software, there are always alternatives. In this article, we will discover TickTrader Trading Platform as a robust MT5 or MT4 alternative and discuss the features that make TickTrader stand out from the crowd.

MetaQuotes and MetaTrader

MetaQuotes, the company behind MetaTrader, has been a dominant player in the financial trading platform market for over two decades. MetaTrader 4 (MT4), released in 2005, quickly gained popularity and became one of the most widely used trading platforms worldwide. Its successor, MetaTrader 5 (MT5), was released in 2010 with the goal of replacing MetaTrader 4, but many brokers continue to use both platforms.

While MetaTrader has become the go-to platform for many digital brokerages due to its ease of use, reliability, mobile apps like MetaTrader, and versatility, there are now several similar MT4 alternative platforms available in the market. These similar platforms offer unique features and capabilities that may better suit traders' needs.

MetaTrader 4 and 5: sought-after features missing

One of the main limitations of MT 4 and MT 5 is that they only offer margin trading, which means that traders can only take positions with leverage. In contrast, some traders prefer to have the option to choose between margin and delivery trading, which involves the actual physical delivery of the underlying asset. MT4 alternative platforms may offer this flexibility.

Similarly, a potential concern with MetaTrader is the limited variety of order types that are available. For instance, certain traders may favor the use of trailing stops, which enable them to automatically adjust their stop-loss orders as the price moves in their favor. However, MetaTrader lacks this feature, which could be a drawback for some traders. On the other hand, MT4 alternatives may provide a wider range of order types and more advanced trading features to cater to the diverse needs of traders.

Moreover, MetaTrader lacks API support, which means that traders cannot use third-party software to connect to the platform or automate their trading strategies. MT4 alternative platforms may offer better integration with third-party tools and services, allowing traders to customize their trading experience.

Another issue with MetaTrader is the recent banning of its platform applications by both Apple and Google stores. Although the issue has been resolved, the applications ban highlights the potential risks associated with using platforms from a single company. MT4 alternative platforms with similar trading applications may offer better reliability and stability.

TickTrader as a MetaTrader alternative

One could say that TickTrader is a MetaTrader 4 alternative designed to address some of its shortcomings. The platform offers a range of advanced features, including the ability to trade both margin and delivery markets, also making it a strong contender for traders seeking a MetaTrader 5 alternative.

Instruments

The financial market comprises various asset classes that traders can trade in, including forex, stocks, indices, commodities, and similar instruments. Both TickTrader and MetaTrader support all these asset classes. However, TickTrader takes this a step further by offering a wider range of digital assets in addition to traditional instruments. TickTrader's diverse range of instruments makes it an ideal platform for traders who want to diversify their portfolio and access multiple markets, including digital assets, from a single platform.

Account types

TickTrader offers three account types, including Spot Operations Accounts, which are not available in MetaTrader, making it a MetaTrader 4 and MetaTrader 5 alternative that is more versatile. These accounts provide traders with the ability to trade physical delivery contracts, as previously mentioned. The Spot Operations Accounts allow traders to make transactions with fiat money and digital currencies, making it more versatile than MetaTrader.

Order types

Order types are essential in trading platforms since they help traders place trades according to their preferences. TickTrader provides its users with a wide range of order types, including Immediate or Cancel (IOC), Stop-Limit, Iceberg, and Hidden orders, positioning it as a strong MetaTrader 4 alternative. Traders can use the different order types to limit their risk exposure and manage their trades efficiently.

For example, IOC, or Immediate or Cancel, is an order type that executes immediately but cancels any unfilled portions. Stop-Limit orders combine a stop order and a limit order, allowing traders to set a price limit for buying or selling. Iceberg orders are similar to large orders that are divided into smaller ones and are not displayed on the order book. They are ideal for traders who want to keep their trading strategies private.

API

TickTrader provides its users with a vast array of APIs, including FIX API, REST API, WebSockets API, and FDK API. These APIs allow traders to integrate third-party tools, such as algorithmic trading software and trading bots, into the platform. On the other hand, MetaTrader only offers a limited number of APIs, such as MQL4 and MQL5, which can be limiting for traders who prefer to use a wider range of third-party tools.

Trading Terminal Features

The TickTrader platform offers several unique trading terminal features that are not offered by the MetaTrader platform. One of these features is server-side alerts. This feature allows traders to set up alerts that are processed on the server-side, reducing the chance of missed trades due to internet connectivity issues or machine shutdowns.

Another unique feature of the TickTrader platform is Telegram notifications. Traders can set up their Telegram accounts to receive notifications for different events such as trade execution, order placement, and account balance updates. This feature is incredibly useful for traders who want to stay informed about their trading activity while on the go.

In comparison, the MetaTrader platform offers email notifications, but it does not have the Telegram notification feature or server-side alerts.

Additionally, TickTrader Trading Platform has a TradingView integration. TradingView is a social network of more than 30 million traders and investors that incorporates the world's most advanced charts and tools to spot trading opportunities across global markets. With this integration, the end users of our trading solutions can get access to market insights from arguably the largest community of active traders and investors in the world.

White Label Sub Licensing Option

The TickTrader Trading Platform license agreement offers a unique option for licensees to provide white label sublicenses to third-party entities. With this option, a new domain is created within the TickTrader Trading Platform specifically for the sublicensee entity. This feature is unique to TickTrader and sets it apart from other trading platforms, including MT4 and MT5 alternatives.

To support the white label sublicense, custom-branded client trading applications are set up for the sublicensee, including web, mobile, and desktop platforms. In addition, a separate custom-branded client personal area component is also set up for the sublicensee.

Both the white label software purchaser and its sublicensee share access to the admin components, with the sublicensee having limited access to the admin functions, based on the purchaser's discretion and the sublicensee's requirements.

Through offering white label services to the sublicensee, the white label software purchaser is able to increase its profits through expanded trading volumes and additional commissions.

Algorithmic Trading Features

Algorithmic trading has revolutionized the way traders approach the financial markets, allowing them to execute trades at high speeds and with greater precision. While the MetaTrader platform has been the go-to choice for algorithmic trading for many years, there are now several MT5 alternatives that offer a range of unique features and benefits.

One such alternative is the TickTrader platform, which boasts a number of algorithmic trading features that are not available on MetaTrader. One of the most notable of these is the market-making algorithm, which allows traders to create synthetic instruments based on two existing ones. This is particularly useful for platforms operating in emerging markets with poorly convertible national currencies.

When considering MT5 alternatives, it's important to look beyond the basic features offered by each platform and consider which ones offer the most value to your specific trading needs. TickTrader's synthetic market-making algorithm and ETF algorithm are just two examples of the unique features that set it apart from other platforms, making it an excellent choice for traders who are looking to take their algorithmic trading to the next level.

Tech Support

Tech support is an essential component of any trading platform, and it ensures that users receive timely assistance when they encounter issues with the platform. TickTrader offers an individual 24/7 support line, which is not yet available in the MetaQuotes product arsenal.

Comparison with other popular platforms

Match-Trader

Match-Trader, a trading platform owned by Match-Trade Technologies, stands out in the Forex platforms market due to its modern in-house technology and innovative features. One of its main strengths is its use of cutting-edge Progressive Web App (PWA) technology, which allows it to be an omnichannel trading app that adapts to screen resolution. This means that traders can seamlessly switch between devices, such as web, mobile, and desktop, with all their settings synchronized in real-time, providing a consistent trading experience. As an MT4 and MT5 alternative, Match-Trader offers traders a robust and user-friendly platform with advanced tools and features for efficient trading in the financial markets.

1. A key feature of Match-Trader, a robust MT4 and MT5 alternative, is its mobile-first approach, which provides easy and fast access to the platform on mobile devices through apps similar to MetaTrader. The platform can be branded with the broker's logo and downloaded from app stores or the website, functioning like a native app without taking up storage space. This ensures smooth performance regardless of the device used, offering traders convenience and flexibility in their trading activities.
2. Match-Trader's intuitive and trader-centered design also enhances the overall trading experience. The platform provides easy access to essential trading information, including current market events, top movers, and the option for automatic trading. It also offers comprehensive information on funds when opening a position, empowering traders with the tools they need for successful trading with this MT4 and MT5 alternative platform.
3. Another notable feature of Match-Trader, an MT4 and MT5 alternative, is its social trading capabilities. The platform allows traders to choose between trading on their own or following other traders' strategies. Social Feed and Copy trading widgets enable easy access to signal providers within the platform, eliminating the need to leave the platform to follow money managers' strategies or copy selected trades to automate their trading.

In conclusion, Match-Trader's unique features, such as its use of PWA technology, mobile-first approach with apps like MT4, trader-centered design, and social trading capabilities, make it a compelling alternative to traditional trading platforms.

cTrader

cTrader is a multi-asset trading platform provided by Spotware, a leading trading software provider. cTrader is also available in both web and mobile versions and offers a range of advanced trading features.

When comparing the two platforms, TickTrader and cTrader, there are several areas where they differ:

1. User Interface: TickTrader's interface is intuitive and user-friendly, making it ideal for traders of all levels. The platform has a customizable dashboard that allows traders to arrange their workspace to suit their needs. In contrast, cTrader's interface is sleek and modern, but it may be more complex and less intuitive for novice traders.
2. Execution Speed: Both platforms offer fast and reliable trade execution, but TickTrader's one-click trading feature enables traders to execute trades quickly and efficiently with just one click. This feature is especially useful for scalpers and day traders who need to enter and exit positions quickly.
3. Customer Support: Both platforms offer customer support, but TickTrader's support team is available 24/5 via live chat, email, and phone. cTrader's support team is available during market hours via live chat, email, and phone.

In summary, while cTrader is a popular multi-asset trading platform, it's important to consider its competitors. With its intuitive user interface, one-click trading feature, and round-the-clock customer support, TickTrader offers a strong alternative to cTrader and other metatrader competitors in the market.

ThinkTrader

ThinkTrader is a trading platform provided by ThinkMarkets, a multi-regulated forex and CFD broker. The platform is available in both web and mobile versions and offers a range of advanced trading features. However, there are some areas where TickTrader stands out.

1. Robust strategy backtester allows traders to test their trading strategies on historical data to determine their effectiveness before implementing them in live trading. This feature is essential for traders who want to ensure that their strategies are profitable and effective before putting their capital at risk.
2. An extensive range of advanced order strategies allows traders to execute trades automatically based on predefined conditions, such as price levels or technical indicators. These orders can be used to enter or exit positions automatically, which can be especially useful for traders who need to monitor the markets continuously and cannot execute trades manually.
3. A trading alert system enables traders to receive notifications about specific events in the markets, such as price movements, technical indicator levels, and news events. These alerts can be sent via email or SMS, and they can help traders stay informed about the markets and make more informed trading decisions.

In summary, while ThinkTrader is a popular trading platform that offers many advanced trading features, it may not be the best fit for every trader. However, there are MT5 alternatives that offer a more customizable and flexible trading experience, providing traders with the tools they need to make informed trading decisions and achieve their trading goals.

Comparison table: TickTrader, MetaTrader platforms and MetaTrader competitors

Final thoughts

When it comes to choosing a technical provider for your business, it's important to take this step seriously. This is true whether you are just starting out as a broker or have already established yourself in the market. One of the most popular platforms for traders is MetaTrader, with its versions 4 and 5 being used by millions worldwide. However, there are also many metatrader competitors that offer high-quality products and services.

Without any doubts, choosing a technical provider is one of the most serious steps, whether you are an emerging broker or have already made a name for yourself in the market. At the moment, platforms such as MetaTrader 4 and MetaTrader 5 have a lot of competing products of the highest quality, so the choice like “metatrader vs tradingview” may be the most difficult. If you are faced with this choice, we are ready to hold a free consultation for you.

• Trading platform as your cornerstone
• Trader’s room
• Liquidity aggregation module
• PAMM
• Final thoughts

A trading platform is the main instrument of every trader. Naturally, the success of brokerage business, for the most part, depends on the convenience and technological sophistication of the trading platform offered by a broker. At the same time, you should not forget about the important additional modules and services that you will have to connect to the trading platform, based on the requirements of your business model. This is exactly what we will discuss in this publication.

Trading platform as your cornerstone

Any brokerage business operator must have a few critical requirements for a trading platform.

The terminal should function without technical failures, especially in a situation of increasing liquidity. For long-term investors, such disadvantages are probably insignificant, but delays in trading order processing can lead to loss of profits for scalpers.

Functionality. A good trading platform should have enough tools for technical analysis. When transferring indicators to the chart, the developers should provide the possibility to correct the input parameters. It is also important for many traders to use several periods of the chart to make a trading decision.

User experience. The trading process must be comfortable for a user, so a good terminal offers the ability to change the color of indicators, or the background, or the chart itself. The first impression of a platform is always shaped by visual perception.

No compatibility issues. If necessary, a trader should access the platform through a mobile device, and the operator should connect additional services.

Most popular platforms offered by software vendors do not suffer from the lack of these features. Verified providers usually have sufficient experience and resource base to provide stable operation and acceptable UI for their solutions.

We also can't help but highlight the situation that has historically developed in the brokerage and trading software market. The reality is that if the operator does not employ Metaquotes products, namely MetaTrader 4 and 5, the range of possible customers is significantly limited.

In this article, we will not delve deeper into this factor. Being aware that in 90% of cases the operator will choose the Metaquotes platform, we would rather like to offer guidance on how it can be strengthened depending on your brokerage business model.

One important nuance: In case you are considering a wide range of operations other than pure brokerage and are counting on attracting institutional traders to your business, you have to consider alternative platforms. That doesn't mean you have to abandon Metaquotes software if you are already using MT4 or MT5 as your primary platforms — perhaps your resources allow for seamless integration of advanced platforms, such as TickTrader, into your business.

Trader’s room

Trader's room is a service indispensable for the normal activity of the brokerage business. With Trader's Room, you can create private space for a trader, their hub on the site of your brokerage company. A trader's room allows r traders to add funds to their trading account, withdraw funds from it, monitor trade history, invest in a PAMM account (if the service is available), etc.

What features distinguish a good trader's room?

A variety of connected payment systems for deposit and withdrawal. This option greatly increases the loyalty and trust of traders. The number of connections may depend on the geographical location of your business and the requirements of the regulator.

Compatibility with popular trading platforms. This is a requirement imposed by any business that expects to attract mainstream traders.

The ability to deploy a multilevel referral program. This is a very effective measure to stimulate user activity, which ultimately serves as an additional source of profit for both your business and traders.

High level of protection. Protection of personal data is one of the main factors that potential clients pay attention to.

Trader's Room is a feature that seemingly calls for in-house development. However, given that the market is saturated with white label solutions, purchasing this module from a vendor appears to be a sensible decision to make.

Liquidity aggregation module

Connecting additional sources of liquidity can significantly expand the capabilities of your trading platform, regardless of whether you use MetaTrader 4 or 5 or a niche product.

How can you benefit from independent liquidity aggregation?

Autonomy. Your main advantage will be complete independence in the choice of liquidity flows.

Automation. Computerized control of liquidity flows will allow you to use free resources for other important tasks.

Expense trimming. The liquidity aggregator module enables internal liquidity generation, so you can save significant resources on liquidity providers' commissions.

It is important to note that if you plan to rely solely on the Market Maker model (B Book), the liquidity aggregator functionality does not apply to your platform. However, if you are considering the prospect of becoming a larger Forex market player, it is advisable to pay attention to the hybrid model.

PAMM

A PAMM module is the best way to attract investors to your platform who do not have enough experience in trading but are ready to finance the strategies of other successful traders. The PAMM mechanism makes it possible to invest in experienced trade Masters whose expertise has been confirmed by statistical data, and, subsequently, to expand the number of individuals who can use your broker services.

Any of the requirements below are sufficient grounds to consider connecting a PAMM module to your platform.

• You manage an MT4 or MT5 brokerage and seek to expand the number of your clients.
• You want to make your brokerage services more accessible for clients with any level of experience.
• You want to increase the turnover of your brokerage business.

Final thoughts

Of course, you can consider the custom development of all the brokerage business components listed above. However, for a small or even medium-sized operator, this option makes little sense because it's much easier to use a purchased solution for a quick startup. All you need to do is to decide which components you need for your model and find a reliable vendor to provide them to you.

FOREX BROKER TURNKEY

Pricing calculator

• Introduction
• Identifying Forex Liquidity Zones
• Types of Liquidity
• Role of Liquidity Providers
• Factors to Consider When Choosing a Liquidity Supplier
• Practical Applications
• FAQs

Introduction

Liquidity is the most important aspect of the forex market. It is even called the lifeblood of the FX market because it ensures smooth operations in the market. In the forex market, liquidity distribution is king, and without it, forex trading cannot run smoothly and efficiently.

Liquidity distribution is essentially the ease and efficiency with which currency pairs can be bought and sold in the FX market. The FX market can either be highly liquid or low in liquidity. In a highly liquid market, transactions occur quickly without really affecting the exchange rate. This is a result of sufficient demand and supply for different currencies. Therefore, traders can enter and exit various trade positions with minimal price fluctuations. In low-liquidity markets, however, the market has limited supply and demand. This results in a wider bid-ask spread and then slows down trade execution.

Some of the most visible effects of liquidity in a market are:

Lower transaction costs: A bid-ask spread is the difference between the buying and selling price of a currency. A tight bid-ask spread results in lower transaction costs for traders. Therefore, it helps them retain more of their profits.

Effective Risk Management:  In highly liquid markers, traders can easily adjust their positions or exit the marker as soon as possible. This helps them minimize their potential losses and protect their capital.
Enhanced Order Execution: Traders can react quickly to market movements and take advantage of market opportunities. This means they can enter and exit trade positions more accurately and maximize their returns.

Identifying Forex Liquidity Zones

The level of liquidity distribution is not the same across the forex market at all times. The difference in liquidity distribution can be observed in different currency pairs and trading hours. These pairs and times of higher trading liquidity and activities are known as liquidity zones. Traders can leverage their knowledge of liquidity zones to make better decisions on the best entry and exit positions for their trades.

Several factors lead to the existence of liquidity zones, some of them are:

Currency Pair: Ideally, some currency pairs are more popular among traders than others, examples are EUR/USD. These popular pairs are more liquid compared to other currency pairs that are less frequently traded in the market.

Economic Events: Some events and news can significantly impact the liquidity in the market. The public anticipation might lead to increased volatility in the market. Examples of such events are central bank interest rate announcements, announcements of new policies, and so on.
Trading Session Overlap: There has been observed higher market liquidity at the hours when major financial centers like Tokyo, New York, and London have overlapping trading hours.

Types of Liquidity

The importance of liquidity cannot be overemphasized. In the forex market, all the participants contribute to and are affected by the liquidity situation. However, there are three major types of liquidity to be discussed in this article.

Interbank Liquidity: This is derived from transactions directly made by major financial institutions like banks.  This source of liquidity is the principal contributor to the forex market liquidity.

Retail Liquidity: Brokers contribute to the market liquidity by aggregating orders from individual traders and matching them with those of other market participants. This helps retail traders with small order sizes trade in the market.
Market Liquidity: This is the total level of liquidity of a particular currency pair at a given time. It is influenced by interbank and retail liquidity, and sometimes, factors like upcoming events and market sentiments.

Role of Liquidity Providers

Liquidity providers (LPs)  play a significant role in maintaining an efficient forex market. They are intermediates that quote prices for currency pairs and help traders enter and exit trade positions easily. Some of their primary functions are:

Efficient Order Execution: LPs help facilitate efficient order execution by matching traders’ buy and sell orders.

Market Depth: LPs contribute to the volume of outstanding orders at different price levels by actively quoting the bid and ask prices. This volume of orders is known as the market depth and this pool assists traders by providing flexibility for entering and exiting positions.
Price Discovery: The price quoting function of liquidity providers also helps to facilitate price discovery by determining the fair market value of a currency pair.

Types of liquidity providers

Several institutions facilitate seamless order execution and contribute to market liquidity. Some of these providers are:

Tier 1 Banks: This term refers to the most established and reputable global banks. These banks have huge financial resources and therefore contribute significantly to liquidity through interbank liquidity. These banks usually offer tight bid-ask spreads and efficient trade execution. They are the most trusted financial institutions by the general public.

Non-Bank Market Makers: These are other financial institutions that provide liquidity for specific currency pairs and cater primarily to retail traders. They offer competitive spreads and deep-order books. They leverage the use of technology via algorithms to quote prices and manage risks.

Electronic Communication Networks (ECNs): Platforms such as this aggregate buy and sell orders from various participants anonymously and then match the orders electronically. They ensure transparency and promote price discovery.

Retail Forex Brokers: These are intermediaries between individual traders and the market. They aggregate orders from their clients and transfer them to liquidity providers for execution.

Algorithmic and High-Frequency Trading Firms: Some firms use algorithms and High-Frequency Trading (HFT) strategies to take advantage of the market. They contribute to liquidity by continuously quoting prices and executing trades at high speeds.

Factors to Consider When Choosing a Liquidity Supplier

Partnering with a good liquidity supplier is a very important decision for forex traders. Important things to look out for when choosing a liquidity supplier are:

Technology: Find a reliable trading platform with technology like an advanced order execution capability. Check out factors such as routing speed, uptime guarantees, and fill rates.

Regulatory Compliance: Ensure your preferred liquidity provider has an updated license and complies with the provisions of an appropriate regulatory authority.

Trading Instrument: Check if the LP offers your preferred currency pairs and financial instruments.

Reputation: Conduct extensive research on the reputation of the LP.  Check out online reviews, testimonials, industry reports, and so on.

Pricing: It is important to conduct extensive research to compare bid-ask spreads, commission structures, and all other fees across different LPs before arriving at a decision.

Customer Support: No one loves dealing with a terrible customer support system. Confirm that your preferred LP has a reliable and responsive customer support system.

Practical Applications

Strategies for Identifying and Utilizing Liquidity Zones

1. Identify peak liquidity hours (e.g. when major trading sessions overlap) and conduct most tracers on those hours.
   
2. Use technical indicators on the trading platform like volume bars and order book depth to identify areas of high liquidity
   
3. Take advantage of the limit order tool to choose your preferred entry and exit prices when trading during periods of low liquidity to minimize the risk of slippage.
   
4. Remember to stay up to date with news of upcoming events that can impact market liquidity.
   

FAQs

Q1: Who are Tier 1 liquidity providers and what distinguishes them?

Tier 1 LPs is the general name given to all large and reputable financial institutions in the world. They are known for offering tight bid-ask spreads and exceptional trade execution.

Q2: What are forex Liquidity Providers (LPs) and how do they function?

Forex LPs are financial institutions that continuously quote bids and ask prices for currency pairs. They help to facilitate seamless order execution and contribute to the market liquidity.

Q3: How do liquidity providers generate revenue in the forex market?

LPs generate revenue through various means such as bid-ask spreads, order flow management, rebates, revenue sharing with brokers, and other optional fees like commitment fees.

• Introduction
• Understanding Liquidity in Financial Markets
• Types of Liquidity Providers
• Pros and Cons of Different Liquidity Partners
• Why PoPs Are Optimal For Mid-sized Brokerages
• Factors To Consider When Choosing A Liquidity Partner
• Final Recommendation
• Frequently Asked Questions (FAQs)

Introduction

Liquidity, often referred to as the “lifeblood of the financial market” is the most essential factor fueling activities in the financial market. In the financial markets, brokerage businesses’ survival is based on the availability and accessibility to robust liquidity pools and liquidity partners. A deep liquidity pool empowers brokerage businesses to offer competitive prices, efficiently execute clients’ orders, and minimize slippage.

Understanding Liquidity in Financial Markets

Liquidity is the ease with which assets can be bought or sold quickly, and at a fair price, without causing a significant change in its price. In brokerage services, access to rich liquidity pools helps with faster order execution, tighter spreads, and more reliable trading experience for users. Low liquidity, however, can result in order delays, wider spreads, and difficulty in fulfilling clients’ requests.

Types of Liquidity Providers

There are various sources of liquidity for brokerage businesses, each provider with its unique characteristics. They are:

• Tier-1 Liquidity Providers (LPs): These liquidity providers are well-established and large financial institutions with networks with major exchanges and numerous resources. They are usually characterized by deep liquidity pools as they offer high spreads. However, they often have complex onboarding requirements, and high minimum deposits, and they may prioritize larger clients.
• Regular Liquidity Providers: Regular liquidity providers are smaller firms that provide liquidity, they are quite smaller than Tier-1 LP and would usually have lower barriers than them. Consequently, they may not always provide the same level of liquidity depth or consistency.
• Prime of Prime (PoP) Providers: The Prime of Prime Providers are intermediaries between brokers and tier-1 liquidity pools. They provide liquidity by aggregating liquidity from various sources, negotiating on behalf of the brokerages, and offering additional services like risk management tools and margin lending.

Pros and Cons of Different Liquidity Partners

The different liquidity providers have their peculiar features, pros, and cons that make them uniquely different and cater to the differing needs of brokerages. Let's take a look at some of them:

Tier 1 Liquidity Providers

Pros:

1. Tight spreads
2. Deep liquidity pools
3. Reliable and efficient execution
   

Cons:

1. High barrier to entry
2. Huge minimum deposit
3. Prioritization of their bigger clients
4. Less personalized services

Regular Liquidity Providers

Pros:

1. Lower barrier to entry compared to Tier-1 liquidity providers.
2. Better personalized service
3. More flexible terms of service
4. Lower minimum deposit compared to Tier-1 liquidity providers.
   

Cons:

1. Less robust liquidity pools
2. Wider spreads compared to tier-1 liquidity providers
3. Potential counterparty risks ( risk of liquidity providers not fulfilling their obligations)
   

Prime of Prime (PoP) Liquidity Providers

Pros:

1. Accessibility of Tier-1 liquidity without the entry barriers
2. Competitive pricing as a result of aggregation
3. Provision of additional services like risk management tools and margin lending
   

Cons:

1. The potential for an additional layer of risks
2. PoPs service costs

Why PoPs Are Optimal For Mid-sized Brokerages

Mid-sized brokerages usually find Prime of Prime (POP) liquidity providers the most favorable alternative. Some of the reasons why PoPs are preferred are:

• Competitive Pricing: Many mid-sized brokerages prefer the competitive prices that PoPs offer. PoPs can offer these prices because they aggregate liquidity from many sources which enables them to negotiate on behalf of their brokerage partners and get the most favorable rates. These competitive prices also ensure that your platform’s users have access to competitive spreads.
• Reduced barriers to entry: Unlike tier-1 liquidity providers, POPs have fewer entry barriers and requirements. This provides an avenue for smaller brokers to be onboarded into their liquidity pools. Consequently, the playing field is more equal for big and mid-sized brokerages and they are given growth opportunities.
• Scalability: As mid-sized brokerages continue to grow in terms of client size, trading volume, and activities, they need consistent access to liquidity. PoPs provide solutions that can scale and adapt to the brokerage’s growth and ensure constant liquidity.
• Variety of services: PoPs offer services beyond liquidity provision. They cover a host of other beneficial services like risk management tools, margin lending, and technology solutions to streamline operations and enhance the client’s overall trading experience.

Factors To Consider When Choosing A Liquidity Partner

Choosing the right liquidity partner is a very important decision for brokerages. There are several factors to consider when aiming to choose the best liquidity provider. The most important among those factors are:

• Pricing: Pricing is perhaps the most obvious factor to consider when choosing an LP. Before choosing a liquidity provider, it is important to compare pricing structures (including spreads and commissions) and fees of other services provided by PoPs.
• Security: Brokerages who are considering opting for PoPs should ensure that these providers have robust security measures in place to protect clients’ funds and data. It is important to ensure that chosen PoPs have security measures that comply with industry-standard security procedures and they conduct regular security audits.
• Scalability: Scalability is also a very important factor when choosing a suitable PoP partner. Your brokerage should consider the PoP’s capacity to scale alongside your business growth. You should ask questions about their ability to handle quick increases in trading volume and dynamic market conditions.
• Reputation: Reputation matters a lot. It is important to choose a reliable PoP liquidity provider with a track record of financial stability. This will help your brokerage have confidence in their liquidity access. It will also minimize counterparty risks and instill confidence in your clients
• Technology: It is important to evaluate the potential PoP’s technological infrastructure and its ability to be seamlessly integrated into the brokerage’s existing system. It is advised to opt for a PoP that offers a modern API for efficient order execution and smooth data exchange.
• Customer Support: Customer support after purchase is very important to facilitate seamless integration with existing systems. It is important to evaluate the quality of the customer support system offered by the PoP. Be on the lookout for a provider with accessible and trained customer support staff, and 24/7 customer service. You should also enquire about the after-sales service of the PoP.

Final Thoughts

In the process of developing and launching your brokerage business, it is important to choose the right liquidity provider to ensure smooth operations. Small and mid-sized liquidity providers should conduct thorough research and analysis on the different types of liquidity providers as well as the pros and cons associated with each kind. They should also consider all the important factors to note when choosing a liquidity provider and how beneficial engaging Prime of Prime (PoPs) is before committing. PoPs offer a range of competitive advantages like competitive pricing, accessibility, scalability, better technology, comprehensive services, and better customer support and experience.

Frequently Asked Questions (FAQs)

Q1: Why is liquidity essential for brokerage businesses?

Liquidity is very essential for the operations of a brokerage business. Deep liquidity pools give room for efficient order execution, minimize slippage (the difference between the expected and the actual price of an order), and provide fair and competitive prices for the platform users. If there is a shortfall of liquidity for a brokerage, the brokerage might find it difficult to efficiently fulfill clients’ orders on time.

Q2: What are the different types of liquidity partners?

There are three main types of liquidity providers, we have:

• The tier-1 liquidity providers consist mainly of big financial institutions with deep liquidity pools which are the primary sources of liquidity in the financial market.
• Regular liquidity providers who are smaller firms compared to tier-1 firms offer access to liquidity from various sources but with lesser entry barriers and shallower liquidity pools.
• Prime of Prime (PoP) providers are intermediaries that aggregate liquidity from tier-1 LP and negotiate on behalf of brokers.

Q3: What is the best option for medium-sized and smaller brokerages?

For mid-sized and smaller brokerages, Prime of Prime (PoP) providers are the most attractive liquidity providers. They can attract these brokerages due to special offers they provide in the market. These include reduced entry barriers, competitive pricing, scalability, and auxiliary services.

• Introduction
• What is liquidity in Forex?
• Importance of liquidity
• Forex market overview
• Factors affecting Forex liquidity
• Measuring Forex liquidity
• Final thoughts
• FAQs

Introduction

The foreign exchange (forex) market is the largest and most liquid global financial market trading trillions of dollars worth of different currencies every day. For most people, it is a sort of decentralized network of participants trading various pairs of currencies with the pricing being controlled by the forces of demand and supply. However, the participants of a forex market go beyond just individuals, it consists of banks and other financial institutions too. This powerful global market is being powered by a very important element — liquidity.

What is liquidity in Forex?

Liquidity can be easily explained as the availability of something, preferably a resource. In the context of foreign exchange markets, liquidity refers to the ease and efficiency with which a currency pair in the market can be easily sold or bought without significantly affecting the price. It refers to the readily available demand and supply for a currency pair, that is, the currencies are readily available and sufficient traders are willing to trade them.

Liquidity is the lifeblood of the forex market. Due to the nature of the forex market— volume of participants and providers, it is important that transactions are settled quickly at a price closest to the real market value. That is where the importance of liquidity comes in.

Markets with high liquidity are very efficient. The orders are executed seamlessly and quickly at a price close to market value ensuring a low spread range and minimum slippage. Markets with low liquidity on the other hand will suffer long pending orders at rates differing from the regular rates. This is because there is a shortage in demand for the pair and there are fewer buyers than normal.

Importance of liquidity

As mentioned earlier, Liquidity is very important in the forex market. It helps to maintain the balance and stability of the market. It does this by:

• Ensuring fast execution. Highly liquid Markets will enjoy speedy order execution with very little slippage (i.e. the difference between the desired price and the executed price).
• Reduced Volatility. Markets backed up by sufficient liquidity will experience less volatile price swings. This ensures a stable price market and minimal investor losses.
• Tighter Spreads. A spread is the gap between the buy and sell prices of currency pairs. High liquidity reduces the spread and ensures lower transaction costs. Overall, this results in fair pricing for market participants.

Forex market overview

The global forex market is estimated to have a daily volume of $2.4 quadrillion, making us a highly liquid market. This huge forex market consists of a large range of diverse participants. These participants are responsible for the constant demand and supply of forex ensuring a reliable pool of liquidity for trades in the market. Some of these participants are:

• Central Banks. These are some of the biggest participants in the market in terms of volume. The central banks of various countries are responsible for managing their national currencies and influencing the exchange rates of their currency against others.
• Financial Institutions. Many financial in St are directly involved in the forex market. Institutions like banks, investment firms, and brokerages often act as intermediaries on behalf of their clients to facilitate forex transactions and provide market access.
• Speculators and Hedgers. This group of individuals, businesses, and traders aim to either gain profit from foreign exchange fluctuations or mitigate the forex liquidity risks associated with international transactions.

Factors affecting Forex liquidity

The forex market plays a very significant role in international trade and globalization. Any slight price fluctuation in the forex market can significantly influence trade agreements between countries and global investment. The liquidity of the forex market is not exactly constant, although it has a baseline level of liquidity. Understanding the factors that affect liquidity can help traders anticipate changes in the FX market and adjust their trading strategies.

Some of the factors influencing Forex liquidity are:

• Market Size. Market size is one of the most important factors that affect forex liquidity. Popular currencies like the US Dollars (USD), Euro (EUR), and Japanese Yen (JPY) have high liquidity due to their high volume and global demand.
• Monetary Policies. Monetary policies and interventions enacted by the central banks usually have a significant effect on the FX market. They can influence investors and market sentiment and consequently affect the liquidity levels of such currencies.
• Global News and Events. Important news and events like political decisions, economic news and events, and natural disasters also significantly influence market sentiment. This can then affect liquidity by encouraging or discouraging trading activity on some currencies.
• Trading hours. There are some specific trading hours or sessions adopted by major financial trading centers ( New York, London, Tokyo, etc.). Trading during trading hours guarantees liquidity. However, liquidity may be reduced significantly for traders trading outside these hours.

Measuring Forex liquidity

Measuring forex liquidity can be a little bit technical, it is not exactly like counting how much money is in the market. However, there are a few metrics that can be used to measure a currency’s liquidity.

• Spread. The Forex market is quite similar to other markets. Like others, the currencies have different buying and selling prices. The market makers buy currencies at a price and then sell for higher prices. Consequently, brokers offer different buy and sell prices and traders buy currencies at a price higher than the selling price. The gap between this buying price and the selling price is called a spread. A tight spread indicates high liquidity, more competition, and tighter pricing.
• Trading volume. The trading volume refers to how many active transactions or exchanges occur between buyers and sellers. High trading volume is associated with high liquidity while low trading volume is associated with low liquidity. Traders often compare the historic and present trading volumes of trade currency pairs to find out the change in liquidity levels in a market.
• Price action. Price action is also a good measure of liquidity. A stable market with consistent pricing signifies an adequately liquid market. Currency pairs or markets with high price volatility are less liquid.
• Market depth. The market depth refers to the number of placed orders in a market, usually the pending buy and sell orders in the market. When there are many orders placed, it signifies many traders in the market and of course high liquidity. Traders often analyze the market order book and measure its depth to gather insights into the liquidity of the market.
• Liquidity ratios. Liquidity ratios are popular metrics for measuring liquidity. Turnover ratios in particular (e.g. current ratios, quick ratios, cash ratios) are used to measure liquidity.

Final thoughts

It is important to establish at this point that high liquidity is very advantageous to the forex market and low liquidity is bad for the forex market. Let’s now analyze the pros of a market having high liquidity and the cons of having low liquidity.

Pros of high liquidity.

• Faster order execution time. High liquidity is often an indication of many orders and traders. Therefore, the higher the liquidity, the higher the likelihood of a speedy trade execution.
• Controlled Volatility. High liquidity is heavily associated with stable markets with very low price volatility. This ensures consistent pricing and trader risk minimization.
• Low spread. The more liquidity in a market, the lower the gap between the ask and bid prices.

Cons of low liquidity.

• Higher Cost. When there is a low supply of liquidity in the market, prices go higher. Consequently, the spread and the transaction costs are higher too.
• Market Inefficiencies. Due to low market liquidity, the market orders execution time will get longer, delaying execution and increasing cost. The market inefficiency can then become unattractive to potential traders.
• Price Instability. When there is low supply in the market, traders become more sentimental and sensitive to market news which can cause prices to become unstable.

FAQs

Q1: What do liquidity providers do in Forex trading?

Liquidity providers are institutions and individuals that quote the buy and sell prices for currency pairs. They help to ensure market efficiency by constantly providing bid-ask quotes. They ensure offers are always available for traders and as a reward for their contribution, they earn a spread.

Q2: Which Forex trading pair has the most liquidity?

Major exotic currency pairs in the global forex market are the most liquid. Some of these major currency pairs are EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

Q3: Why is Forex market so liquid?

Some of the factors that contribute to high Forex liquidity are the large market size, the decentralized structure, the participation of major players, and the market accessibility.

• Introduction
• Features and Benefits of TickTrader
• Case study
• Conclusion
• FAQs

Introduction

Our TickTrader trading platform is a testament to the understanding that institutional traders operate within a diverse landscape of goals and preferences.

Institutional traders work in a complex financial world where quick decisions and adaptability are key; they handle lots of trades in different markets and need platforms that allow them to act swiftly, tools to analyze markets accurately, and options to invest in many kinds of assets. TickTrader provides these benefits and more.

With TickTrader, one can delve into Forex, stocks, CFDs, futures, ETFs, commodities, and indices via one trading account. This array of instruments empowers traders to diversify their portfolios, explore different asset classes, and capitalize on various market opportunities.

For the past three years, our trading platform TickTrader has been positioned as a good alternative to popular MetaTrader 4 and 5, integrating solutions to some of the platform's shortcomings into TickTrader. This has made it more favoreble for institutional traders . In this article, we will share the unique features and benefits of the TickTrader trading platform for institutional traders.

Features and Benefits of TickTrader

Flexible Range of Functions. One of the advantages of the TickTrader trading platform is that it anticipates the needs of both beginners and experienced customers. This is very important for institutional traders, as they can meet the diverse needs of their clients and ensure that their business grows.

Therefore, even if a group of inexperienced users has no plans to use custom alerts or other advanced features now, it is possible that they will want to do so in the future. Some of these features include a one- or double-click trading mode, an advanced trading alert system with the ability to link on the server side, and a detailed charting system with the ability to draw, see volumes, trade, and set alerts.

Availability of Different Account Types. TickTrader broadens traders' choices by making various account types available for them to choose from. They include the spot exchange accounts and margin operations accounts.

While spot exchange accounts appeal to traders seeking simplicity by providing a streamlined avenue for real-time trading, the margin operations accounts operate quite differently as they are crafted for those who aim to leverage their positions, amplifying profit potential.

This type of account gives access to leverage and margin trading, enabling traders to wield larger positions than their account balance would traditionally allow. TickTrader’s spot operations accounts also allow traders to make transactions with fiat money and digital currencies, which is ideal for traders who prefer to trade in physical delivery contracts.  

Execution Speed and Reliability. Execution speed and reliability are essential components of any trading platform, as no trader wants to encounter issues with a platform during a trade. TickTrader offers fast and reliable trade execution, especially with its one-click trading feature, which ensures traders never miss trade opportunities due to connectivity issues. This feature is especially useful for scalpers and day traders who must quickly enter and exit positions.

Client applications. The various client apps that TickTrader provides are specifically designed for different ecosystems and also help to ensure a reliable execution speed. They include:

1. TickTrader Desktop App offers high-level functionality and allows both marginal trading and exchange of low-latency FX.

2. The TickTrader Web App allows access to TickTrader from any place and only requires a computer connected to the Internet.

3. TickTrader Mobile App (for Android and iOS) provides user-friendly access to mobile Forex and trading on the Internet 24 hours a day, 7 days a week.

Customization. TickTrader offers a range of customizable tools and functions that specifically meet the various requirements of institutional traders. For example, the Trader interface is intuitive and user-friendly, so it is ideal for traders of all levels. The platform has a customizable dashboard that allows traders to organize their workspace to suit their needs.

In addition, TickTrader's API integration allows institutional traders to adapt their trading experience to their specific workflows, seamlessly integrating the platform into their existing systems. We offer users a wide range of APIs, including the FIX API, the REST API, the WebSockets API, and the FDK API. These APIs enable traders to integrate third-party tools into the platform, such as algorithmic trading software and trading bots.

Order types. A variety of order types is essential because they allow traders to place trades based on their preferences. TickTrader offers a variety of order types to its users, including Immediate or Cancel (IOC), Stop-Limit, Iceberg, and Hidden orders. Institutional traders can use the various order types to limit their risk exposure and efficiently manage their trades.

IOC, or Immediate or Cancel, is an order that executes immediately but cancels any unfilled portions. Stop-limit orders combine a stop and a limit order, allowing traders to set a price limit for buying or selling. Iceberg orders are similar to large orders that are broken down into smaller ones and are not visible in the order book. They are ideal for traders who want to keep their trading strategies private.

Algorithmic Trading Features. Algorithmic trading has changed how traders approach the financial markets, allowing them to execute trades faster and more precisely. The TickTrader platform offers various algorithmic trading features not found on other popular trading platforms. The market-making algorithm, for example, enables traders to create synthetic instruments based on two existing ones. This is especially useful for platforms operating in emerging markets with difficult-to-convert national currencies.

TickTrader also provides an ETF (Exchange Traded Funds) algorithm, allowing trading platforms to create custom trading indices based on their own instruments. This facilitates retail clients' investment decisions while broadening the range of trading opportunities on the platform. TickTrader's synthetic market-making algorithm and ETF algorithm are just two examples of the unique features that set it apart from other platforms, making it an excellent choice for traders who are looking to take their algorithmic trading to the next level.

Tech support. Tech support is an essential component of any trading platform, as it ensures that traders receive immediate help in navigating platform-related issues. TickTrader offers an individual 24/7 support line. It also introduces unique terminal features, such as server-side alerts and Telegram notifications, that address the critical need for reliability in a trading platform.

Case study: FXOpen Prime's Journey with TickTrader Trading Platform

The Challenge. FXOpen, an international regulated broker, faced a complex challenge — create a platform for institutional traders. Their clients demanded a versatile trading platform capable of supporting diverse strategies, including high-frequency trading and handling toxic flows. The broker needed a solution that offered both sophistication and simplicity, catering to professional market participants like hedge funds, banks, and large financial institutions.

The Turning Point. The decision to adopt the TickTrader Trading Platform developed by Soft-FX marked a pivotal moment for FXOpen. This platform promised to unify account management while offering thousands of trading instruments, a feature crucial for FXOpen's diverse client base.

Implementing the Solution. The TickTraders' advanced trading tools, professional market analysis capabilities, and mobile accessibility addressed the core needs of clients with institutional background. The platform's design allowed traders to analyze, back-test, decide, and trade with unparalleled efficiency.

The Results.

• Enhanced Liquidity and Execution: FXOpen Prime connected to a wide network of major sell-side vendors, ensuring robust liquidity and consistent execution for all trading strategies.
• Competitive Edge: The platform provided attractive institutional exchange rates, razor-thin spreads, and transparency in pricing, appealing to discerning institutional traders.
• Global Reach: With the capability to exchange in a majority of global currencies, FXOpen Prime expanded its global footprint.
• Technological Superiority: Partnering with leading financial institutions ensured a reliable and comfortable trading experience, bolstered by high liquidity and superior technology.

Client Impact. With FXOpen Prime service, Traders experienced a new level of trading with real-time data, economic news, and comprehensive tools like Level 2 tick charts and Depth of Market access. The platform's single-click execution and sophisticated alert systems made trading more efficient and effective.

Looking Ahead. FXOpen, trusted by hundreds of thousands of traders worldwide, stands as a testament to the transformative power of the right technology. The TickTrader Trading Platform not only solved the immediate challenges but also set a new standard in the trading industry, proving that with the right tools, nothing stands in the way of profit.

Conclusion

Profitability is essential for any trader, institutional or not, and the TickTrader platform ensures that you profit while providing high-quality products and services that exceed customer expectations.

Choosing a trading platform can be difficult, especially given the number of competitors available. If you are faced with this decision, we are happy to provide you with a free consultation.

FAQs

Q1: What are features and tools essential for an institutional trader?

Comprehensive order types: TickTrader provides many orders, including Immediate or Cancel (IOC), Stop-Limit, Iceberg, and Hidden orders. These options enable traders to manage risk exposure better and execute trades based on their preferences.

API Integration: The platform offers a diverse set of APIs, including FIX API, REST API, WebSockets API, and FDK API, allowing for seamless integration with third-party tools. This integration enables traders to use algorithmic trading software and bots to implement advanced risk management strategies.

Q2: What kind of support can be offered to institutional clients within a service launched with TickTrader integration?

TickTrader offers an individual 24/7 support line. It also introduces unique client app features, such as server-side and Telegram notifications, that address the critical need for reliability in a trading platform.

Q3: Can you provide examples of successful institutional services integrating TickTrader?

FXOpen is a renowned broker using TickTrader Trading Platform. Their FXOpen Prime service for institutional client is based on technologies and features offered by TickTrader.

• Flexible range of functions
• Trading accounts for different objectives
• Advanced order types
• Slippage control
• Terminals to reach every platform
• Business side features
• Wrapping up

The field of Forex trading technology, following the market itself, can be quite volatile, and not always these changes are palatable. Recently, MetaTrader 4 and 5 apps were removed from the App Store. Another alarming fact that adds to the concerns of industry professionals is that MetaQuotes, one of the largest providers of OTC trading software, has put on hold the process of accepting applications for white label solutions for MT4 and MT5 trading platforms.

In light of these events, we consider it our duty to once again remind our followers of the principles we adhere to when developing a safe white label technology to launch a Forex broker. The example is our TickTrader Trading Platform, a technology that not only allows brokers customers to issue provide unlimited number of subsequent white label licenses, but also to place their own trading applications in the AppStore and Google Play without any restrictions.

Flexible range of functions

Ideally, the trading platform, regardless of what target audience you are addressing, should meet the needs of both beginners and experienced clients. Even if a group of inexperienced users have no plans to use custom alerts or create their own EA right now, it is quite possible that they will want to do so in the future. Being able to anticipate such needs can greatly increase your chances of retaining old customers and gaining new ones as your business grows.

Speaking of options for advanced users, TickTrader Trading Platform offers features like one/double click trading mode (perfect to take advantage of rapidly moving markets), advanced trading alert system with ability to bind on the server side (so the client activity is not linked to the state of trading applications), or detailed charting system with the ability to draw, see volumes, trades and set up alerts.

Trading accounts for different objectives

Ideally, your customers should be given the opportunity to choose the type of account that best suits them depending on the desirable currencies to work with, instruments, initial deposit, brokerage bonus offer, and many other conditions.

Advanced order types

In addition to common order types (market and pending orders, like Stop, Limit, and Stop Limit orders), trades should also be offered to operate advanced orders that allow experienced users to build more complex trading strategies.

In addition to complex orders like Good Till Cancel or Hidden, TickTrader Trading Platform also allows creating order strategies, like Ladder or OTA (One Triggers Another). This gives users much more flexibility in different market conditions.

Slippage control

To help eliminate or reduce slippage, it is desirable to apply a slippage control function. For TickTrader Trading Platform, Slippage control implies the following operating principle: the Slippage control value is added to the price of the client's market order, then an IOC (Immediate or Cancel) order is placed. The liquidity provider undertakes to execute this limit order at available prices, but not below the limit order price.

Terminals to reach every platform

With web, desktop, and mobile multi-language terminals your clients can choose the most efficient way to experience your services. TickTrader Trading Platform offers four different types of client terminals with a set of functions specifically designed for a particular environment.

1. The TickTrader Desktop Terminal has high-end functionality and opens access to both marginal trading and exchange of FX and Crypto instruments with low latency.
2. The TickTrader Web Terminal provides access to TickTrader from any location and requires only having a computer connected to the internet.
3. Finally, The TickTrader Mobile Terminal (both for Android and iOS) provides user-friendly access to mobile Forex and exchange trading via the Internet 24/7 from anywhere and anytime.

A well-developed API kit

The kit of TickTrader Trading Platform application programming interfaces allows developers to create customizable trading tools and interfaces to use with the TickTrader trading server for no-terminal trading. TickTrader Trading Platform API kit includes Web REST API, Sockets API, FIX API, SFX and Manager API.

Among other functions,54 TickTrader’s API kit allows users to receive detailed information about financial instruments, user accounts, and trading operations, and connect securely to TickTrader Server to get information about quote flows (currencies, symbols).

Business side features

Above we talked about the benefits that the trading platform can provide to the end client. However, we should not forget that under the hood you can place a lot of useful features that will greatly facilitate the existence of administrators. Each software provider looks at this challenge in a different way, so we will take a look at the modules that have been implemented as part of the TickTrader Trading Platform administrative architecture.

The possibility of sublicensing

Customers implementing the white label solution incorporating TickTrader Trading Platform can also provide sublicensing services. The sublicensing system is quite simple and available for immediate use as soon as the solution is deployed. The software purchaser is able to provide a sib-license as a part of the agreement with Soft-FX, and potentially increase their profits through expanded trading volumes and additional commissions.

Algo-Studio

TickTrader Algo Studio includes protocols that allow developing and running algorithmic trading systems. It comes with the preset of market-maker algorithms, which provide for administrators an ability to manage price flow, liquidity, pricing policies for any token or derivative instrument. TickTrader Trading Platform software package also includes a set of trading bots and ready-made algorithmic trading systems, that also provides the ability to import and convert strategies from MT4 and MT5 for later use in TickTrader.

Stock Events module

This module allows configuring stock operations on the trading platform depending on corporate actions that occur at a particular point in time. Corporate action refers to any activity that brings material change to a stock-issuing organization and impacts its stakeholders. Dividends, stock splits, mergers, acquisitions, and spinoffs are examples of corporate actions, all of which can require significant resources to process in the absence of automation.

The TickTrader Stock Events module is an example of a tool to counteract such occurrences. This feature allows you to adjust data by eliminating gaps arising from events such as splits, dividends, and mergers and acquisitions, enabling your platform to accept adjustments as seamlessly as possible.

Liquidity Aggregation

TickTrader Trading Platform can be configured to maximize diversification of liquidity flows and generate market depth feed. For example, it is possible to utilize a powerful matching engine enabling clients to generate internal liquidity and act both as price-takers and price-givers. This means that in addition to the liquidity from external suppliers, you will be able to add your clients' orders to the market depth. This can significantly reduce the expenses on the liquidity providers' commissions. Extended risk management options bring a hybrid A-book/B-book model, implemented through a trading multiplier system, where each trading account on the platform can be assigned a trading multiplier. The value of this multiplier determines the percentage of the requested trading volume that goes to the external market, allowing you to handle performing clients according to current business objectives.

Admin Console

TickTrader also features a comfortable administrator console. The interface and workflow were developed with a focus on the fact that employees who will use this functionality can have absolutely different experiences. For example, the TickTrader admin console should be quite easy to learn for dealing department employees with previous experience in using the admin and manager components of MT4 and MT5.

Wrapping up

Trading platform development is a very complex processIt involves the development of a reliable and secure trading platform architecture, integration of various functions, and customization of the software according to the customer's individual needs. Trading platform development involves the evaluation of various technologies, the development of a secure architecture, and the integration of different components to provide a comprehensive solution. Trading platform development also requires the use of advanced algorithms and technologies to ensure the security and accuracy of transactions.

• The concept
• Raw price flow and the first set of filters
• Copy and truncate filter
• Expiration filter
• Dynamic disabling LP filter
• Margin level filter
• Spread markup filter
• Instant spread markup filter
• Broker market depth and the second set of filters
  • Shifted validator filter
  • Aggregator filter
• Bottom line

Connecting multiple liquidity providers to your broker or digital asset platform is the first step to ensuring attractive prices on your trading platform. However, the next step, which is as important, is handling the flow of quotes supplied by the providers. And this is where the software instruments that help to automate and improve this process come to the fore. To give you an example, the quote filter subsystem, which is part of the TickTrader Liquidity Aggregator, is a great one. We will analyze how it helps to turn a raw quote feed into an aggregated stock ticker that is attractive to end clients and profitable for your own tasks.

The concept

The main purpose of this component is to process the quotes flow that you receive from your liquidity providers. The processing itself is strictly tied to exactly what business challenges you want to solve and how you want to see the resulting market depth on your platform.

To achieve this, the filter system addresses two main objectives. The first one is to create a market depth for the broker, with prices that will only be available to the broker before they are sent directly to execution. The second objective is to display quotes for the clients, which they will send their trade orders to in the terminals.

Now we are going to look at how exactly they are achieved.

Raw price flow and the first set of filters

Raw price or quote flow refers to the original offering of liquidity providers, which, for one reason or another, may not fully satisfy a broker. It processes prices from liquidity providers and creates the broker's depth of the market. To get a better understanding of how this set functions, let's look at the filters it contains.

Market depth filter

This type of filter is a kind of "switch" to connect the liquidity provider or trading symbol or completely disconnect them from the platform for any reason.

Essentially, this filter sets the market depth value for a particular provider or a particular symbol. If this value is equal to zero, then the entire flow of quotes for that vendor or symbol will not be transmitted any further.

Expiration filter

This filter determines the relevance of quotes from liquidity providers. This is achieved with a special parameter that is set and measured in seconds and defines for how long the quotes are considered relevant. If the waiting time for a quote from the provider exceeds the value set by the broker, the prices are deleted until the waiting time is less than or equal to the set parameter.

LP disabling filter

With this filter, it is possible to remove quotes from a particular liquidity provider if they do not execute orders for a certain amount of time. The decision to disconnect a provider is made automatically using the set value of execution attempts.

Margin level filter

This filter is specially designed for brokers who work with margin trading. Margin level filter calculates the margin level for liquidity providers in relation to the margin level threshold. For each provider, a broker can configure four filter states: no action (the filter is idle), remove bid, remove ask, and remove bid and ask.

Spread markup filter

This filter has a direct effect on the depth of the market that is displayed to the client, as it allows you to assign a markup to providers' prices for any symbol. The value of the markup can be set either in points or as a percentage, and it is kept hidden for the end clients.

Arbitrage resolving filter

This filter ensures that liquidity providers do not have arbitrage prices. As soon as the BID offer of one provider exceeds the ASK of any other provider, the filter defines this situation as arbitrage and can automatically apply its own markup to prices in order to execute the client's order with a favorable spread for a broker.

Broker market depth and the second set of filters

As a total of this set of filters, the market depth is formed, which the broker is ready to send to the execution for the end clients. After that, a second set of filters comes into play, which shapes the next iteration of market depth, delivered to trading terminals, and relayed through APIs.

Spread validator filter

This filter, getting the best BID and ASK for each liquidity provider, compares them with the values set in the filter, and eliminates quotes completely if the values are exceeded.

Order book aggregating filter

The task of this filter is to collect all the prices from the broker's market depth and display them for the client in a way where all the providers are depersonalized. The broker can set the depth, the minimum lot volumes, and other parameters for quotes that they are willing to provide in the terminals.

Bottom line

Despite the fact that the filter sets described above mostly operate in automatic mode, always remember that before connecting and configuring any software tool for your brokerage, you need to analyze the data and think about where you want to end up with your market depth. We are ready to provide you with comprehensive consulting on this TickTrader Liquidity Aggregator feature as well as its other components, and tell you exactly where it can help your business.

• Secure server: meaning
• What security risks can a web server face?
  • DoS and DDoS attacks
  • SQL Injections
  • Unknown software
  • Cross Site scripting
  • The human factor
• Network safety and server safety
• Web server security: best practices
  • Remove unnecessary services
  • Create isolated environments for development, testing, and production
  • Set permissions and privileges
  • Update patches
  • Separate and monitor server logs
  • Install a firewall
  • Conduct file cleanup
  • Block backup access
  • Set up an audit
  • Hide the version of a web server
  • Automate backups
• Final thoughts

To gear your trading business with secure servers and mitigate potential threats, it's important to be aware of the ever-changing security environment. But first you need to set up an IT infrastructure to handle applications, web services, and databases. It's not an easy task, but without proper protection the entire infrastructure will be at risk. This time we'll talk about the basic security measures you should take before you start running your servers. Let’s discuss what is server security, how to create a secure server environment and eliminate various risks of intrusion, like hackers and other threats.

Secure server: meaning

A web server is a server that serves HTTP requests. Its main function is to display the static content of the site. It also automates the operation of web pages, authorizes and authenticates users, logs user requests, and supports secure HTTPS connections. An application server is a framework (software platform) that works not only with HTTP and HTTPS, but also with other protocols. It provides user interaction with dynamic and static content.

The definition of a secure server derives from practices and techniques that ensure server safety. Both web and application servers need protection against software intrusion, traffic interception and unauthorized access to important information.

Before we start talking about how to secure a server, let's discuss the most common types of threats that pose a danger to servers.

What security risks can a web server face?

Web servers are one of the most important parts of a corporate network because of the sensitive data they typically store. As a result, it is important that you not only protect web applications and your network as a whole, but also that you take careful measures to protect your servers from hackers and other looming threats.

The hazards that threaten a server on the Internet can be divided into two main groups: infiltration and brute force.

Infiltration is related to the fact that an intruder, having picked up or stolen account data, can get inside the operating system as a logged-in user. This is especially dangerous if an account with administrator privileges is compromised. Then the attacker can manipulate data, such as account statements, or steal sensitive information.

Brute force is associated with external impact on the server, in which it can lose functionality. A vivid example of such impact is all sorts of DoS (Denial of Service) attacks. During such an attack hackers send a large number of useless requests to the server to create a parasitic load. When more requests come in than the server is configured to handle, it quickly runs out of processing power, and the server stops responding. For example, if the attacked server hosts an online store site, its visitors will see a mournful message on the screen that the site is temporarily unavailable.

A secure server usually falls into one of two categories. Most often it is a server on a public network that supports security protocols such as SSL, which means that sensitive data transmitted to and from the server is encrypted to protect the user. Alternatively, it can mean a web server used only by a group of employees on a local network, protected from external threats.

There are several major threats to web servers that are important to be aware of in order to prevent and mitigate these risks. These may include the following factors.

DoS and DDoS attacks

This is one of the main threats to think about to keep your servers safe. Denial-of-service attacks and distributed denial-of-service attacks are methods cybercriminals (or hackers) will use to overwhelm your servers with traffic until they stop responding, rendering your website or network unusable.

SQL Injections

SQL injection can be used to attack websites and web applications by sending structured query language requests through web forms to create, read, update, modify, or delete data stored on your servers, such as financial information.

Unknown software

Software updates and security patches are designed to address vulnerabilities in older versions of the software. However, once a new patch is released, hackers can reconstruct attacks based on the changes, leaving unpatched versions vulnerable.

Cross Site scripting

Cross site scripting, also known as XSS, is a threat somewhat similar to SQL injection: code is injected into server scripts to collect sensitive data or to execute malicious client scripts.

The human factor

However, one of the most common threats to server safety is human error or inattention. Whether it's poorly written code, easily guessed passwords or failure to install and update firewalls and other security software, the human element in cybersecurity tends to be the weakest link.

Network safety and server safety

Secure servers are just one part of a broader holistic network security strategy. While server security refers specifically to measures taken to protect server environment and the data they process, network security also includes things like firewalls and anti-virus software to protect other parts of the network.

Laptops, smartphones, and other Internet-connected employee devices are all parts of your network that should be protected from threats. Phishing emails, fake websites, and malicious applications are just some of the risks, so it's important to use comprehensive endpoint protection in addition to web server security. This includes perimeter protection, such as firewalls, as well as software that prevents potential threats from entering your network undetected.

Web server security: best practices

So, how to create a secure server? How to protect a server from hackers? Provided here are best practices you can follow to set up a safe web server or improve the security of your existing enterprise web servers.

Remove unnecessary services

Operating systems and default configurations are not completely safe. Strictly speaking, the default installation includes many network services that will not be used, from remote registry services to print server services and other features.

The more services you have running on your server operating system, the more ports remain open, which means that more doors to the network can be exploited by a malicious hacker. In addition to providing security, removing unnecessary services can also improve the performance of your server.

Create isolated environments for development, testing, and production

Development and testing is often done on production servers, so sometimes you may come across web sites or pages on the Internet that contain details such as / new / or / test / in the URL. Web applications that are in the early stages of development often have security vulnerabilities and can be exploited using freely available online tools.

Set permissions and privileges

Network service permissions and file permissions play a critical role in your network security. If your web server is compromised by network service software, an attacker can use any account running a network service to perform tasks. Because of this, simply setting minimum privileges for users to access web application files and server databases can help prevent data loss or manipulation.

Update patches

Basic server security As mentioned earlier in this article, not updating your software with the latest patches can allow cybercriminals to reverse engineer paths into your network.

Separate and monitor server logs

As part of regular security testing, keep server logs separate and monitor and review them regularly. Unusual log file entries contain information about attempted and successful attacks, and should be investigated as they occur.

Install a firewall

Software firewalls are easy to set up and manage and will protect server infrastructure from unauthorized communications and intrusions.

Firewalls are an essential part of any server configuration. Even if your software has internal security features, a firewall will provide an additional layer of protection.

A carefully configured firewall will block access to anything for which you don't assign an exception yourself. Vulnerable components covered by the firewall will reduce the attack surface on the server.

Conduct file cleanup

To ensure the servers are safe, it is also necessary to periodically perform some kind of cleaning, or more precisely, to delete test files, archives with source code and backup files. These files may be created during the installation and testing of the web server, but later they are no longer needed. However, an intruder can use them to compromise your servers, and then the company may suffer losses, both financial and reputational.

Block backup access

Be sure to block access to backup folders for all public web servers, as hackers can detect them. This measure is relevant if you have left some servers public and have not blocked access to them.

Set up an audit

So far, we've talked about technologies that enhance server security. However, much of the security lies in analyzing your system. Understanding the available attack surfaces and which system components to block will give you the best protection result.

An audit is a process that shows what services are running in your server infrastructure. Often the operating system is configured by default to load and run certain components when you turn it on.

To simplify the auditing process, you can get a checklist like this:

• Should the service be run without permission?
• Is the service running on an interface that is not needed? Should it be bound to a single IP?
• Does your firewall miss unwanted traffic coming from a particular process?
• Do you have a way to get security alerts in the event of a vulnerability for each of the services?

An audit can help you analyze which ports the system uses and which protocols are accepted. This information can help you configure your firewall. In another publication we will tell you how to perform a basic technical audit in more detail.

Hide the version of a web server

The version of the server can tell an attacker a lot: what vulnerabilities are available on a given server and how it can be hacked. A hacker can also figure out which operating system the server is running on, which also helps them when planning an attack.

Automate backups

Regular server backups ensure that if your protections are compromised, you can quickly recover and restore your data. Automation can increase efficiency, but the IT person should check for problems that may have interrupted the process.

Final thoughts

The technologies and measures on how to secure a server described above are just some of the improvements you can make to create a safe server infrastructure. It is important to note that implementing such protections is crucial, and the sooner the better, because the longer you wait, the longer you expose your business to threats.

• Preparation stage
• Basic requirements for obtaining a Forex broker license
• Forex broker license categories, and conditions for acquiring them in reference jurisdictions
  • Prime market jurisdictions (A)
  • Versatile jurisdictions (B)
  • Popular jurisdictions (C)
  • Offshore jurisdictions (D)
• Final thoughts

The license is one of the determining criteria for traders when choosing a Forex broker. If we are talking about the legislative side of the issue, Forex rules and regulation indicate which regulator controls the activities of the brokerage, as well as determine the overall reputation of the company. Many types of licenses are issued by different Forex regulatory agencies around the world under different jurisdictions, but the choice depends on the scale of the broker's business, budget, and other variables, which we will discuss in this publication. Together with legal officers of Soft-FX, we discussed the regulatory and cost requirements for obtaining licenses, restrictions, as well as exemplary jurisdictions for Forex brokers, and the most renowned Forex broker regulators. Please keep in mind that this review is relevant as of January, 2023. We’ll make sure to make updates if any changes occur in the area of Forex regulations and law.

Preparation stage

So, how to become a licensed Forex broker? There are several ways of obtaining a Forex business license for operating on the Forex market and find the best Forex regulator for your business. However, to start with, a broker needs to decide on the geography of operations. It doesn't mean that the business office address and location of operations should correspond. However, depending on the registration location, the conditions for registration may vary, including the time required to process the application, as well as legal and financial aspects.

To understand which institution to apply for a license, a broker needs to address several important factors:

• what budget they are willing to allocate for the license;
• banks the company is going to open accounts with;
• the region in which the company will be operating;
• how long they are willing to wait for an effective response to a licensing request and its issuance.

Having answered these questions, it will be much easier for the broker to decide on the institution from which they want to obtain a license.

Basic requirements for obtaining a Forex broker license

First, let's make a clear idea of what is a regulated broker. Regardless of jurisdiction, the basic requirements for obtaining a Forex business license are:

Depending on the financial regulator you need a license from, a Forex licence procedure may look different, as well as Forex license cost. This applies not only to the list above but also to the contents of individual documents. If a brokerage company decides to apply for a license with a contractor, they should prepare for additional expenses. These may include:

• accounting activities;
• office rent;
• salaries;
• additional bank accounts;
• creating terms of use;
• privacy policy;
• cookies policy.

Forex broker license categories, and conditions for acquiring them in reference jurisdictions

As mentioned above, a Forex licence procedure and all the conditions that go along with it can be radically varied. Each country has its own legal framework and that is why each government's attitude to the foreign exchange market looks different. As one might assume, the most reputable and versatile licenses issued under regulators like the National Futures Association require a corresponding investment. However, depending on the budget available to the brokerage business, there are several notional categories of Forex licenses.

Prime market jurisdictions (A)

This category includes Forex regulations in the United States and Switzerland. In the United States, the Commodity Futures Trading Commission (CFTC) and the National Futures Association regulate the Forex market, while in Switzerland — the Financial Market Authority (hereinafter — FINMA). The regulators of these countries are considered quite stringent.

Forex brokers licensing conditions in the USA

The U.S. Forex broker license is one of the most prestigious and gives access to the richest foreign exchange market in the world. To obtain a license from the United States to operate in the Forex market, a company must comply with the requirements of one of the most stringent Forex broker regulators. First, the applicant’s company office must be physically located in the country. Moreover, the complaints of clients are taken very seriously here, which can easily influence the regulator's decision on the further activity of the brokerage company.

In order to work in the US forex markets, a company needs to obtain a license called Retail Foreign Exchange Dealer (RFED). The process of issuance is accompanied by scrupulous verification of the company's capital sources, personal information of its owners, passing exams by key employees, etc.

Code of federal regulations for a Forex licence procedure suggest that a company must possess minimum adjusted net capital equal to or in excess of the greatest of:

• $20,000,000;
• $20,000,000 plus five percent of the futures commission merchants or retail foreign exchange dealer's total retail forex obligation in excess of $10,000,000;
• any amount matching CFR’s minimum financial requirements for futures commission merchants and introducing brokers;
• the amount of adjusted net capital required by a registered futures association of which the futures commission merchant or retail foreign exchange dealer is a member.

If this threshold is reduced, it is required each time to notify the NFA. In this case, the entire reporting of the company is obliged to be transparent, i.e. the broker must put almost all data including the information about the accounts, etc., in the open access. The procedure of receiving a Forex business license takes from one to two years.

FX brokers in the USA are obliged to submit in time a great volume of the reports. The regulator at any time has the right to conduct an unannounced inspection of the company without prior notice. Such a level of control allows the National Futures Association and the Commodity Futures Trading Commission to react instantly to any violations of customer rights. Even the smallest violations can incur heavy fines.

Forex brokers licensing conditions in Switzerland

FINMA is fully responsible for the Swiss financial system.

Swiss brokers with an FX license have the status of a bank and the same strict control measures are applied to them as to the banking institutions. This makes brokers with a Swiss license reliable agents in the eyes of clients from all over the world. Swiss brokers are obliged to submit regular reports and be prepared for quarterly and annual audits. The Swiss system itself is recognized as one of the most reliable, not only because of its impeccable reputation and reinforced controls but also because of the high warranty obligations to customers in the industry.

Versatile jurisdictions (B)

The United Kingdom and Australia can roughly be included in the category of Forex broker regulators with relatively adequate cost requirements and access to attractive markets. The regulator in the UK is the Financial Conduct Authority (FCA), while in Australia it is the Australian Securities and Investments Commission (ASIC). These countries have lower capital and reporting requirements.

Forex brokers licensing conditions in the United Kingdom

Despite the less strict requirements, the UK FCA brokerage financial license is one of the most reputable in the world. To pass a Forex licence procedure, a company must be registered in Great Britain. For this purpose, such a legal form as a joint-stock company with limited liability (LTD) may be optimal.

The FCA refers to the Forex market as to the financial services industry which means that the requirements for companies applying for a license here are rather stringent. For example, high requirements are imposed on the company personnel, in particular to the director who must prove their understanding of this financial market segment and prove their professional qualification and experience in this field. At the same time, they must reside in the territory of the United Kingdom.

Capital requirements depend on the services that the company is going to provide within this Forex regulation:

• From GBP 125,000 GBP for companies engaged in brokerage activities, attracting funds from clients (e.g. STP brokers);
• 730,000 GBP for the companies that work on the market-maker or Dealing Desk Broker model and conduct operations on their own account and in their own name (purchase and sale of currency, securities, assets), i.e. have an impact on the market.

Forex brokers licensing conditions in Australia

To go through with a Forex licence procedure in this country, a broker, in addition to registering a company in Australia, must provide ASIC with comprehensive evidence of sufficient financial resources, sufficient qualifications of its employees and must be willing to comply with all legal requirements, including anti-money laundering provisions. ASIC has the right to demand from the company any documents and information it deems necessary.

Legal address in Australia is mandatory. Small businesses must submit accounts to ASIC within a month after the end of the year, and provide regular financial reports at the end of each fiscal year. Small businesses are considered to be those with gross revenue of not more than 25 million USD and the number of employees not more than 100 employees.

All other companies submit their audited financial reports to ASIC within 4 months after the end of the financial year, and provide financial reports within 4 months after the end of the fiscal year. In case of any violations (including filing false information to ASIC) or non-payment of state fees, the Forex license can be revoked.

Popular jurisdictions (C)

Level C includes Forex broker regulators from Cyprus, New Zealand, and Malta. In Cyprus, the official regulator is the Securities and Exchange Commission (CySEC), in New Zealand it is the Financial Markets Authority, and in Malta is the Malta Financial Services Authority (MFSA). Formally, these regulators provide a certain level of protection for clients of brokerage companies. They require brokerage companies to have local offices, but they do not require as detailed reporting as the countries mentioned above, and Forex licence procedure looks a bit less complicated. One of the main features of brokerage companies under these Forex regulations is that they work mainly with clients from Europe.

Forex brokers licensing conditions in Cyprus

An FX license obtained in Cyprus is the key to the entire European Union. Cyprus is the jurisdiction that forex brokers choose most often when they want to expand their activities in the EU. This is because the license issued by CySEC gives brokers the ability to sell and accept deposits from clients and to establish their presence legally in all member states of the European Union.

The requirements for the minimum amount of capital depend on the services that the company intends to provide. For STP brokers this amount is around 125,000 EUR, and for market makers, it is 730,000 EUR.

An office in Cyprus and at least three local directors, who must have experience in finance, are also required. The average time to obtain a license in Cyprus is six months.

The procedure for obtaining a Forex license in Cyprus is much easier compared to the aforementioned countries. Moreover, this jurisdiction is considered to be respectable, so the CySEC license will lend credibility to the brokerage company. Another advantage is that investors can contact the CySEC directly in case of any complaints.

Forex brokers licensing conditions in New Zealand

All companies willing to operate a Forex broker in New Zealand must obtain a financial license at FMA. Under the Financial Markets Conduct Act 2013 (FMC Act), a company must be licensed to make a regulated offer of derivatives. Every company (unless an exemption applies) which has a financial license is obliged to register with the Financial Dispute Resolution Service (FDR).

Forex brokers licensing conditions in Malta

Malta, like Cyprus, is a member of the European Union and, as a consequence, provides access to European markets. This jurisdiction is remarkable for its open economy, attractive tax environment, good reputation, and stable political and economic environment.

According to FX regulation license conditions and rules, a brokerage company must have an office in Malta and qualified staff (including directors) and must file regular financial reports. The entire process of obtaining a license takes an average of five to seven months. The minimum required capital for an STP broker is EUR 125,000; for market makers, this amount is EUR 730,000.

Offshore jurisdictions (D)

Well, what is a regulated broker's status in the case of offshore jurisdictions? This is where we step on fragile terrain. To understand who regulates Forex brokers offshore, we must first understand the very nature of this jurisdiction. An offshore in the context of the Forex market is a jurisdiction that is outside the traditional financial center of the world's activity. It means that the financial legislation is not developed or is poorly developed there, taxes are low, or there are significant tax benefits. Offshore jurisdictions still allow remote filing and receipt of documents.  When registering it is easy to get by with a minimum package of documents. There is no need to have a large share capital and pay taxes.

Another distinctive feature of offshore jurisdictions is that obtaining a license does not require a preliminary audit. The decision to issue a license is made based on the submitted package of documents. Nobody checks the company's activity and its legal purity.

Keep in mind that opening bank accounts, connecting fiat payment systems, and establishing relationships with liquidity providers may prove challenging due to such a jurisdictional environment. Moreover, the pressure of big regulators forces offshore zones to adopt the established international financial legislation and tighten the conditions, imposing additional rules and restrictions.

Most offshore locations are on islands in the Pacific, the Indian Ocean, and the Caribbean. Classic examples of offshore countries are Belize, Guyana, Suriname, and others. The fee for obtaining a license in such Forex regulations can be as low as several thousand euros.

Final thoughts

The above-mentioned countries are not all jurisdictions where it is possible to obtain a Forex license. You can also open a company and obtain a license through Forex broker regulators in Hong Kong, Singapore, Panama, Latvia, Czech Republic, Estonia, Ireland, Bulgaria, Gibraltar, Mauritius, India, and other countries.

In general, getting a license without professional help is not easy in any Forex regulation. Therefore, enlist the help of experienced law professionals who will help you to properly apply for a license, draw up documents in accordance with the legal requirements of a particular country and will monitor and adjust the entire process.

• Consider your positioning in the market
• Optimize your digital advertising model
• Remember that content is a cost-effective instrument
• Invest in your traders' education
• Balance out your email marketing
• Explore social media platforms to find the right fit
• Find the right activity to engage your users
• Final thoughts: personalizing your marketing strategy

Emerging Forex brokers have to solve a whole range of challenges that every young business comes up against. These issues relate not only to the technical support and equipment of the trading platform but also to its promotion in the oversaturated market. We discussed how a promising marketing strategy for modern brokerage companies can look with Yvonne Hambridge, Senior Marketing Manager at FXOpen. FXOpen is a global Forex and CFD broker, which has been operating in the market for more than 15 years and utilizes Soft-FX software solutions.

Consider your positioning in the market

The volume of the Forex market is currently estimated at 6.6 trillion dollars. Around 9.5 million people around the world trade online. This means that roughly one in every seven hundred of all the people who live on our planet can become your client. This is a tempting customer base, but the problem is that the total number of Forex brokers, both large and small, totals in the hundreds. You need to be prepared to cut through the information noise that other Forex marketing campaigns create, and it's important to understand exactly what makes your company stand out from the rest, and exactly how you will tell potential clients about yourself.

The Forex industry at the moment is fairly heavily saturated with various brokers, and for the most part they offer the same thing; most brokers offer tight spreads, a lot provide ECN execution. In terms of the chosen FX business model and its features, this will make it harder to differentiate your offering. So brand awareness is key. It will be necessary to make your target audience understand what trading with your particular FX broker can offer, in addition to the basic brand hygiene factors of tight spreads, round-the-clock support, and a variety of trading instruments (although these features are important to mention). The strategy of building brand awareness depends on the specifics of each particular Forex business and its target audience. Some classic industry examples are sports sponsorships and partnerships, or building a wide affiliate network.

Yvonne Hambridge

FXOpen Senior Marketing Manager

Optimize your digital advertising model

In the case of online trading, a successful marketing strategy almost always includes some form of paid advertising. However, one should remember to manage advertising budgets wisely and regularly measure the effectiveness of paid promo campaigns, matching them with the business plan.

Paid search is a great tool to drive highly targeted traffic to your website. But in order to make this channel effective, you shouldn't forget about traffic and user segmentation to ensure you're really targeting the right section of your intended audience. Be sure to test paid search campaigns, every step of the way, and make refinements as needed. A good approach to take in Forex advertising is to not look at paid search in isolation. Ensure a multi-channel approach that will consider any related social media accounts, email marketing, web content and everything else that helps to reinforce your brand message.

Yvonne Hambridge

FXOpen Senior Marketing Manager

Remember that content is a cost-effective instrument

In a marketer's toolkit, content is probably the most versatile and one of the most effective resources, as long as it is properly communicated to the target audience. Your marketing team can create a single piece that can be efficiently used for a website main page, for a blog post, for an email campaign, and for various other uses. And if there's one thing we can be sure of in an ever-changing and digitalizing environment, it's that the role of content is only going to strengthen, so you have to make every piece of content that is created work as hard as possible across multiple channels. Also, quality content is a good way to build a network of influencers, as engaging posts and articles always create points of discussion. Unlike forced, bonus-driven user behavior, refined and personalized content makes everything work naturally.

At this point, it is useful to mention ensuring consistent messaging in the content that’s produced. This helps sustain your differentiation from other brokers and to ensure that each piece published is aligned with the overall marketing strategy. A brand book/brand guidelines may become an ultimate help in achieving consistent messaging, as content assets are often created by several people or even departments, and a brand book ensures everybody is on the same page with what’s being created, from digital assets to blog posts

Yvonne Hambridge

FXOpen Senior Marketing Manager

Invest in your traders' education

Regardless of the category of traders your company is targeted at, any Forex advertising model involves some form of client education. The field of foreign exchange is not the easiest to master, and every trading platform is based on solutions that require onboarding. Even if you're confident that 90% of your clients have extensive experience, activities such as educational webinars and helpful media content will provide you with the rewarding image of a customer-conscious company.

Every FXOpen client has access to a vast knowledge base and media content that covers all levels of Forex trading, from introductory explanations to advanced concepts like algorithmic trading. This way we make sure that every trader has not only access to the wide range of instruments and analytical tools provided by FXOpen, but also the ability to use them correctly. We represent the kind of Forex business that is committed to our client’s success and their comfort while using our platform, which is why educational content is an important marketing tool. We implement it everywhere from blog articles to email newsletters.

Yvonne Hambridge

FXOpen Senior Marketing Manager

Balance out your email marketing

It’s predominantly cheaper for a company to retain an existing customer than to acquire a new one if we are talking about marketing costs. So it is important to utilize regular mailings to ensure that you are at the forefront of your customers’ minds. Email marketing will help build trust and long-term relationships with existing customers and, if handled carefully, can help attract new ones as well. If a company’s CRM service allows it, you can automate and customize emails and newsletters for different categories of customers.

You have to make sure that what you’re sending is not perceived as spammy. The content of your emails should be relevant to your customer base, but even useful and educational pieces of content can seem intrusive if you send them out too often. Determine the content and layout for different categories of emails, determine what frequency is appropriate for different customer segmentation, and gradually implement your email marketing strategy, tracking performance at each stage and making incremental changes along the way.

Yvonne Hambridge

FXOpen Senior Marketing Manager

Explore social media platforms to find the right fit

In this day and age, you don’t want to be excluding social media in its entirety, even if you are not looking to actively acquire clients through this Internet channel. The mere fact of having a social media profile instills trust in users, and it is a great way to communicate with your clients.

Even if a company doesn’t rely much on the social media account in terms of promotion, it’s generally a good idea to analyze the user activity to see what they say about you that they would not take the time to email to your customer support team. Also, identifying the social platform where most of your users are located can provide you with quite a few useful insights into new ways to interact with your target audience.

Yvonne Hambridge

FXOpen Senior Marketing Manager

Find the right activity to engage your users

Contests, as well as bonus and reward systems, not only help to attract new clients but, above all, allow existing users of the trading platform to look at the functionality or philosophy of the broker from a new perspective. PAMM accounts are also a great way to attract a new category of investors, who are passionate about the foreign exchange market but do not have time or opportunity to engage in trading directly. It is possible to find a suitable activity to match the resources or technological capabilities of almost any FX business.

The positives of having as many extra activities on your platform as possible are that your users get to experience products and offerings from a new perspective, so your relationship with the customer base does not get stale. You can also bring in your content resources to create some PR on the back of that and obtain publicity by providing newsworthy content for the media.

Yvonne Hambridge

FXOpen Senior Marketing Manager

Final thoughts: personalizing your marketing strategy

From all of the above, it tends to conclude that the more targeted you can become in your Forex marketing campaigns, the better. Once you've decided on your audience and the specific message you want to deliver, get to work and target exactly the right group for your Forex marketing strategy — MT5 users, algo traders, 2 investors, etc. It’s always best to make decisions based on data, so the more ideas, theories, and marketing products you can put in your A/B promo testing, the better.

• Brief historical notes
• Implementation of the ECN model: a valid alternative, and the price of progress
  • Liquidity aggregation tool
  • Revenue model
• What are the benefits of the ECN/STP model?
  • The ethical aspect
  • The legal aspect
  • The risk management aspect
  • The technological aspect
• Final thoughts

The ECN model is referred to as the most conflict-free and advanced in the Forex market. And while few would argue with that, many companies still adhere to the market maker model. Without accusing or pointing fingers, we will again define what is the ECN model, and analyze through our experience, why the transition to the electronic communication network model is not that easy, and why most brokerage businesses out there may actually benefit by applying the ECN/STP concept to their platform.

Brief historical notes

The mainstreaming of FX ECN accounts began approximately in 2009-2010. It was then, on a wave of traders' frustration, that Forex market maker brokers first felt a tangible leakage of clients.  What was the reason for the frustration? First of all, the practices used by dishonest companies. The vast majority of market maker brokers were like casinos, which are known to play against their clients. And when customers win, casinos lose money.

When Forex brokers' clients began accumulating experience en masse, a large number of successful traders appeared in the market. When the conflict between brokers and their clients entered a sharp phase, ECN accounts, which excluded the very reason for the conflict, started to gain popularity. ECN brokers were completely transparent and guaranteed every transaction of their clients, but they were still in the minority.

Be that as it may, the cat was out of the bag, and the truth about what a pure market-maker broker really was, could no longer be concealed. The companies practicing such a model had only two ways to keep the interest of their clients: sophisticated promotions and bonuses or switching to the ECN system. However, as it became clear from experience, not all of them chose the latter way. In the following section, we will try to figure out why some companies are reluctant to follow the progress and what types of Forex brokers are really interested in the functional concept of ECN.

Implementation of the ECN model: a valid alternative, and the price of progress

Before we talk about what tasks face a company choosing to implement the ECN system, let's break down the concept itself. Probably, the reader already has some understanding of how ECN brokers work, but in the context of this publication, it is important to consider how we look at the problem.

In the ECN-model, liquidity on the trading platform is generated by all participants in the trading network. The process of matching their orders with each other is called internalization because it happens within the platform and is not exposed to external execution. But remember, this is not to be confused with the market maker execution model where the quotations flow is basically imitated, and the other party to the transaction is the broker.

That said, emerging businesses that use the ECN model may not always experience sufficient liquidity inflows to support proper order execution. They can benefit from the ECN/STP model, which, in our opinion, is one of the main attributes that distinguish the advanced and versatile broker. Now let’s break down why we persist in the opinion.

To begin with, we would like to emphasize that we do not consider the 'ECN vs STP' paradigm to be constructive. The main difference between ECN and STP broker models lies in the transaction routing. But here's the thing — the ECN/STP model turns this difference into an advantage.

So what is ECN in a nutshell? The ECN, or electronic communication network model, as a rule, is based on a technological solution, which provides matching orders of all network participants, including banks, centralized platforms, companies providing services on OTC, as well as private clients.

The concept of STP means that the broker sends all orders to external execution without interfering with the process, and all transactions are performed at maximum speed. An ECN/STP broker, therefore, takes the best of both worlds, generating quality internal liquidity and having access to risk hedging from external sources.

Under the ECN/STP model, the money is still on the side of liquidity providers, whether these providers are coming from the inside network or connected externally. Brokers generate income from the commissions, or fees that are charged on each client transaction. Consequently, the ECN/STP model imposes potential requirements on the company, which must be met in order to comply with the status of a progressive broker.

Liquidity aggregation tool

As already mentioned, liquidity in the ECN/STP model is generated by market participants, with the potential to connect external sources. To manage this process, you need both a technical solution with a matching engine to combine orders, and resources to collaborate with a reliable liquidity provider from the external market. These two components will ensure that you achieve important goals: provide your platform with commission-free liquidity through internalization, get additional liquidity through connections to external sources, and warehouse the risks of client trades, if necessary.

Revenue model

Unlike market makers, brokers using electronic communication network scheme do not incur losses from well-performing clients, but there is an emerging view that the fee-based earning model may bring less revenue to a platform with a small and medium number of clients. In any case, this is worth having in mind when calculating a long-term business strategy.

What are the benefits of the ECN/STP model?

Taking into account the information above, we can conclude that the transition to the ECN/STP model for some FX companies can be very tangible, if not even painful, from a financial and technological standpoint. Nevertheless, the model has some unconditional advantages which attract a certain category of market players.

The ethical aspect

An FX broker who only makes money on commissions from orders is motivated to make sure that clients are trading and generating ever-increasing volume. This is the main point in the confidence-building strategy between the client and the trading platform, and it always looks favorable in an advertising campaign. Therefore, the ethical meaning of the ECN model lies in the fact it represents the definition of a reliable and trustworthy broker.

The legal aspect

Due to the profit generation model, it is much easier for ECN/STP brokers to obtain a license from well-known jurisdictions. On the contrary, a market-making company that plans to register somewhere except offshore will most likely have to prepare a large security deposit and submit regular reports to the regulator, which also entails additional costs.

The risk management aspect

The FX market is saturated with ultra-volatile assets, and the aspect of risk hedging is particularly relevant for brokers who include in their portfolio such instruments as, for example, digital assets. The ECN/STP model eliminates the scenario where sharp movements in asset prices can take down a brokerage business, as all prices are determined by liquidity providers.

The technological aspect

As a rule, the software that is used to support a healthy FX ECN/STP model has many additional features that greatly simplify liquidity management. One of them is the ability to partially lay off excess risk to external liquidity providers when needed. And the word ‘partially’ can mean the smallest shares of in-house trades.

FOREX BROKER TURNKEY

Pricing calculator

Final thoughts

In the end, the trading and technological infrastructure of a brokerage are determined by an analysis of the target audience, as well as the desired ratio of risks and profits. Only after that, you look into the difference between execution models. At the same time, in our honest opinion, the ECN/STP model can offer the most advanced components of modern brokerage, and freedom of choosing how exactly you want to supply your liquidity depending on the situation at hand. We at Soft-FX are ready to prove it to you by the example of our products and solutions.

• Three major risks for any brokerage
  • Issues with liquidity providers
  • Problems with a technology provider
  • Untimely hedging of client's profits
• Popular risk models: a broker’s outlook
  • A-book
  • B-book
  • Hybrid model
• Hybrid risk model: navigating the client patterns
• Keeping liquidity providers happy
• Final thoughts

As a rule, when it comes to risk management in brokerage firms, it is customary to mention only the subject of choosing between the A-book and B-book. And although the issue of liquidity is pivotal, the set of risk mitigation procedures includes other equally important aspects. We will consider them in this publication and try to derive some guidelines that will help to apply these principles correctly.

Three major risks for any brokerage

Regardless of the chosen brokerage business model, there are three main risks that any FX broker will have to deal with. Please keep in mind that these risks are relevant to established businesses that have all the attributes of a full-fledged brokerage, and not just the name.

Issues with liquidity providers

The broker's money is always on the side of the liquidity provider, so we can say that the relationship between the provider and the broker is unequal, and the problem with liquidity originates from this imbalance. In case a provider wants to profit more and widen the spread a little bit, for example, that would automatically deteriorate the situation for your clients. Also, with complete dependence on one provider, any problems on their side, as if financial or technical, will extend to a brokerage. Also, keep in mind that changing providers is not a quick process, and the procedure can take up to three months.

Problems with a technology provider

Not all brokers have the resources to maintain a large staff of developers and technical specialists. Very often companies use the services of contractors who develop new back-office functionality, connections to payment systems, bridges, and connectors. In this case, you become technologically dependent, and it will be very difficult to change the provider of the corresponding services if the need arises.

Untimely hedging of client's profits

Every client wants to make money, and that's why traders initially come to brokers. This, however, begs the question of the proper handling of performing clients, so that sudden, unexpected market movements do not put the company out of business altogether. In this case, the approach to risk management in brokerage firms  (A-book, B-book, hybrid), as well as the correct assessment of the client behavior, comes to the fore.

Popular risk models: a broker’s outlook

Let's start by taking a closer look at the A-book, B-book, and hybrid Forex broker business models, and highlighting their main features and differences from the broker's perspective.

A-book

First of all, let’s talk about what is an A-book broker in Forex. The definition of the A-book model is a brokerage operation scheme that transmits all client trades directly to the interbank market. Thus, the broker acts only as an intermediary, while the market acts as a counterparty. The broker's income consists of markups and commission.

The main advantages of this option are that the results of clients' trading do not carry any risks for the broker, on the contrary, the latter can profit from the trading turnover. Thus, it is advantageous for the broker that a client trades as long as possible and does not lose their money, which is why many traders consider A-book brokers to be more reliable or profitable. One more advantage of such an approach is the lower cost of the license and simplified regulation conditions. Now it matters a lot because traders tend to choose brokers with the regulation in well-known jurisdictions, and offshore companies without regulation lose clients and trust.

B-book

Now, let’s talk about what is a B-book broker. The B-book or market maker (MM) is a model of risk management in brokerage firms, where the broker serves as a liquidity provider for a client transaction that does not reach the interbank. Unlike A-Book, the FX B-book model does not imply overlapping trades via liquidity providers. Thus, a B-book broker bears the responsibility to the client with their own funds, i.e. the client's profit is the broker's loss and vice versa.

There are several important drawbacks that make it very difficult to find a pure FX B-book broker in the market right now. Because of the conflict of interest, customer confidence in such brokerage businesses is greatly diminished. Moreover, note that an MM broker's license in a well-known, non-offshore jurisdiction will require a hefty sum as a security deposit. Also, a regulator will require detailed reports, which will entail additional costs.

However, the FX B-book model does have advantages that can be used to a brokerage’s benefit without harming their customers. They are accounted for in the hybrid model, which combines the strengths of the A-book and B-book.

Hybrid model

Hybrid Forex brokers have the ability to decide where to send profitable trades, to liquidity providers or to internal execution. The flow of profitable trades, which is usually sent to liquidity providers, is commonly referred to as toxic.

When a liquidity provider notices a blatantly toxic flow, they can degrade execution quality for that broker. This can affect traders in the form of frequent slippages. To avoid this, it’s imperative to analyze the flow of trades and develop certain mechanisms for handling profitable clients. We will discuss this below.

Also, the right technical tools can help a risk manager to maintain the right balance between internal and external liquidity. For example, Forex Broker Turnkey from Soft-FX is an off-the-shelf solution that includes the trading multiplier system, where each trading account on the platform can be assigned a trading multiplier. The value of this multiplier determines the percentage of the requested trading volume that goes to the external market. This feature helps mitigate the possibility of exposure toxic flows to liquidity providers, while effectively hedging risks.

Hybrid risk model: navigating the client patterns

A hybrid online brokerage business model will be the ultimate tool for any broker, as long as the risk manager has a balanced and analytical approach to the evaluation of client trades. The experience of multiple brokers suggests several attributes that characterize potentially profitable clients.

Consistency

A quality risk manager ought to be able to distinguish between a consistent strategy and regular gambling. Emotional and impulsive styles can be distinguished by the frequency and volume of trades, and such clients are often left to internal execution. If a systemic pattern is observed, especially the pattern that already showed positive results, it is advisable to hedge such trades.

Manual trade control

As a rule, Expert Advisors are quite predictable for experienced risk managers in their behavior and profitability. In contrast, accounts that show signs of a strategic approach and manual trade management are worth considering for hedging in a mid or long period because the gain can be unpredictably high.

Seasonal patterns

Many experienced traders have periods when the success of their strategy coincides with the phase of the market, that is, with any fundamental changes. Such events should be monitored especially carefully because the accounts of these clients are the first in the queue for hedging.

Keeping liquidity providers happy

When a risk manager has correctly singled out and hedged the profitable clients, another challenge is to make sure that liquidity providers do not cut off flows of these traders as toxic. Simple math shows that the more liquidity providers you have, the easier it will be to distribute flows from profitable clients. For example, in case a provider is unhappy with a certain flow, the risk manager can simply worsen that provider's prices for the trader who generates that flow.

Also, the employee responsible for robust broker risk management in the brokerage business should stand ready to negotiate with liquidity providers and defend price values at the time of execution in a disputed situation.

Also, having the right software will allow you to use external liquidity to hedge B-book risks in a Forex hybrid model without jeopardizing relationships with providers.  For example, the TickTrader Liquidity Aggregator allows you to hedge a minimum percentage of trades (down to nano lots) of any clients from external providers. In this case, trades are executed only after confirmation of the price by a liquidity provider, thus fully securing the broker in case of software failures and delays in price mapping.

Final thoughts: singling out a good risk manager

As the brokerage business experience demonstrates, it is impossible to teach all these patterns from scratch in a couple of months. Such skill comes only with practice, which can only be obtained by an experienced trader. It is not difficult to conduct hedging procedures and drain the clearing account. A definition of a good broker risk management model is a situation when the company profits from both the internal execution and the clearing account.

• Why can't we do without liquidity aggregation?
• FX PoP and FX NBLP in a nutshell
• Why choosing the NBLP may be the right decision for your business?
• Technological and operational independence
• Automated slippage control
• Access to the true ECN model
• Wrapping it up

Liquidity aggregation is one of the cornerstones of any FX business. Good liquidity is the key to a high turnover on your trading platform and the influx of quality clients. And while these old commonplace truths hardly need to be explained to anyone, the confrontation between prime of prime and non-bank liquidity provider methods is a relatively novel issue. Moreover, we are increasingly noticing that many are misinterpreting the very concepts of PoP and NBLP liquidity, which can lead to poor choices or detrimental business consequences. The purpose of this publication is to provide a clear definition of what the first and second methods are and to highlight our arguments in favor of NBLP as the most promising way to collect liquidity for your FX business.

Why can't we do without liquidity aggregation?

So what is liquidity aggregation’s main value, plainly speaking? We hope this goes without saying, but unless you are a huge bank and have your own liquidity reserve, you will have to think about what method of aggregation you want to use. Without a liquidity provider, an ordinary Forex broker would not be able to satisfy all of their clients' orders, meaning that it will not be viable in the long term perspective. For each client's order, a seller must be found on the reverse side, and vice versa, and achieving such ideal conditions when the buyer and the seller will meet in a deal with the right volume at the right price at the right moment is a non-trivial task.

A liquidity provider is usually a legal entity that provides more favorable conditions to a broker or exchange, due to the large volumes of supply and demand available. It can also be thought of as a large supplier of goods in a regular retail chain. In the FX domain, they are often banks. The list of major liquidity providers includes international financial exchanges for trading futures, options, and other financial instruments.

FX PoP and FX NBLP in a nutshell

Prime of prime is a long-established method in the industry. As the definition may suggest, it involves connecting the services of a single company providing the brokerage business with Tier 1 liquidity that would not otherwise be available.

NBLP method, non-bank liquidity provider method, or pure liquidity aggregation, implies utilizing software (namely, a liquidity aggregator) that allows a brokerage business to provide the necessary bids at the best prices collected from different liquidity providers.

Why choosing the NBLP may be the right decision for your business?

As a company that develops trading software, we often negotiate with clients who are also looking for a solution to organize liquidity flows within their business. A situation we encounter with regular frequency is when a client asks to be associated with a single liquidity provider, being completely unaware of an alternative method that we believe could give their trading platform more independence and flexibility, while in no way limiting their ability to generate profits. We have highlighted three arguments in favor of the latter statement.

Technological and operational independence

The first point of this sub-headline looks pretty obvious, but we still think it is necessary to notice this: in the case of the prime of prime method, you have to rely on the software solutions that your liquidity provider uses. In case something goes wrong on their side, it automatically indicates difficulties for your platform as well.

Now let's move on to operational independence — this is the main reason why, in our opinion, every trading platform operator should think very carefully before opting for the PoP or NBLP method. Thing is, there are situations where a prime of prime provider can directly affect the way you manage your brokerage business.

The thing is, as companies who work by the prime of prime method themselves admit, your relationship with your provider is very much dependent on the qualitative and quantitative values of the flows that your business channels. And if your flow becomes the cause of losing money for a provider, there are several options for how things will develop, each of which will prove unpleasant for your business in one way or another.

1. The most common way out of this situation for a provider is to widen their spread. And in this case, even the fact that the road to Tier 1 is open to you will not indicate such a great benefit.
2. There have been known cases of providers singling out traders who were “toxic” to them and demanding that they be cut off from the flow. Legal departments of PoP-providers may also consider finding loopholes in agreements to pay only part of the profits or not pay them at all.
3. In the extreme case, if the broker and the supplier do not find an understanding, a complete termination of the relationship may be considered. For the brokerage business, this can mean huge losses or the risk of leaving the market.

While using the NBLP method, you don't have to negotiate with a provider — you just choose a convenient option from the list of those connected to your aggregator.

Automated slippage control

Price slippage is a sign of insufficient liquidity. And this is one of the factors of the broker's liquidity providers assessment. Frequent slippage is a sure sign of a poor quality provider, but the problem is that this factor often doesn't always come up during testing.

So how do you determine the very boundary when it becomes clear that a supplier is performing poorly? For example, if a broker who uses the services of such a provider has orders sliding in an active session, this is a “red flag”.  

Liquidity aggregators completely eliminate this kind of headache. For instance, the filter system built into the TickTrader Liquidity Aggregator allows setting the slippage percentage that the broker is ready to tolerate when working with providers. Moreover, clients can also customize the slippage percentage within the value set by the platform operator.

Access to the true ECN model

ECN, or Electronic Communication Network, is a model that bundles together the largest liquidity providers, or Tier 1 providers mentioned above. Generally, medium-sized brokers and their clients cannot get direct access to this network without an agreement with a major prime of prime provider that will charge commissions for its services.

However, using a liquidity aggregator with certain features, namely a matching engine, will enable you to organize a similar ECN model internally in your platform, without placing small orders on external markets. Of course, this feature is meaningful only if the broker has already gained a sufficient number of clients, but if this condition is met, the internal ECN-model becomes extremely valuable for any broker.

The proprietary matching engine, which is the heart of TickTrader Liquidity Aggregator, enables you to design your own ECN model, meaning that your platform can avoid paying commissions to liquidity providers for a large part of your orders.

Wrapping it up

Of course, in the end, it is up to you to choose what quality and amount of liquidity you work with, and what method your technical equipment allows you to use. We only hope that this piece will help you make a more informed choice.