(+) Liquidity Providers

🏛️ Major Liquidity Providers and Forex Brokers

Liquidity providers (LPs) are financial entities that supply retail brokers with the necessary bids and asks for their clients’ orders by acting on both sides of currency transactions. In the Forex market, the top liquidity providers are known as Tier-1 providers and typically offer the most competitive spreads.

Forex brokers connected to quality liquidity providers can offer their clients a trading environment with minimal slippage and fewer re-quotes. This is why liquidity providers play a crucial role in currency trading.

 

💼 Categories of Liquidity Providers and Forex Brokers

Generally, in the Foreign Exchange market, there are two levels of liquidity providers: Tier-1 and Tier-2:

(1) Tier-1

Tier-1 liquidity providers offer direct access to Foreign Exchange market liquidity. All Tier-1 providers are connected through an Electronic Communication Network (ECN).

This category mainly includes international banks such as UBS, Deutsche Bank, and Barclays. However, other Tier-1 providers include financial exchanges like CME, CBOE, LIFFE, and ICE. Some large hedge funds, brokers, and investment firms may also be classified as Tier-1 liquidity providers.

Tier-1 Liquidity and Forex Brokers:

• ECN Forex brokers are those that can trade directly with Tier-1 liquidity.

• DMA Forex brokers are those that can connect directly to a large Tier-1 liquidity provider.

(2) Tier-2

• Tier-2 liquidity providers act as intermediaries between Tier-1 liquidity and brokers.
• Key Tier-2 liquidity providers in the Forex market include firms such as Currenex, FXCM Pro, LMAX, and Swissquote.

Tier-2 Liquidity and Forex Brokers:

Forex brokers that do not generate enough volume to connect with Tier-1 providers connect with Tier-2 liquidity providers.

• STP Forex brokers access Tier-2 liquidity.

• STP stands for Straight Through Processing, while ECN stands for Electronic Communication Network.

• Transactions of ECN/STP Forex brokers are executed directly with either Tier-1 or Tier-2 liquidity providers.

 

 

👔 Market Makers

Brokers who cannot access Tier-1 or Tier-2 liquidity are classified as Market Makers or Forex agents. These firms operate through a dealing desk (DD) and create their own market within the real market. They are often accused of having a conflict of interest with their customers because they take the opposite side of their clients’ positions. Market makers typically offer a trading environment with wider spreads and higher slippage on order execution.

• Market makers have no access to Tier-1/Tier-2 liquidity

 

🏦 Prime of Prime (PoP) Brokers

A Prime of Prime firm provides retail brokers with access to the trading liquidity pools of the largest banks.

• A Prime of Prime (PoP) broker can access Tier-1 banks' liquidity.
• Prime of Prime (PoP) brokers are classified as Tier-2 brokerage firms.
• PoP brokers offer higher capital leverage to their clients and allow them to trade smaller sizes compared to trading directly with a Tier-1 bank.

 

💱 Bridges with LPs

A Forex broker usually connects with multiple liquidity providers to take advantage of the best quotes available from various sources. This is done by establishing an electronic bridge that automatically links the broker’s trading platform with a third-party platform acting as an ECN. The Forex broker can create different client groups and decide which group's orders will be processed by the ECN and which will be filled internally.

Below is a list of some key liquidity providers worldwide, organized by region.

Table: Liquidity Providers

United States	Morgan Stanley	CME Group	CBOE	Citi Group	Equinix	JPMorgan	CurreneX
	Merrill Lynch	Goldman Sachs	Bank of America	Nasdaq	Tradepoint Systems	FXSpotStream	EasyFX
	ICE	NYSE	FXDD	Nadex	TradAir	GAIN Capital	BNY Mellon
	Jefferies	Spotex	Global Trading Systems	Calypso Technology	Forexware
United Kingdom	UK Clearing House	Barclays Capital	TP ICAP	Make Capital	IXO Prime	Finalto	LMAX
	iS Prime	Refinitiv	CMC Markets	CrescoFX	DMALINK	Rayfin Solutions	CrescoFX
	Quod Financial	FXCM Pro	Sucden Financial	GMEX GROUP	Standard Chartered	FX Connect
	Tickmill Prime	XTX Markets	LSE
Europe	Deutsche Bank	Euronext	Flow Traders	ABN AMRO	Luxembourg Stock Exchange	Societe Generale	BNP Paribas
	TopFx
Switzerland	Credit Suisse	UBS	Swissquote	BierbaumPro	SIX Swiss Exchange
Hong Kong	HSBC	Global eSolutions	Hong Kong Stock Exchange(HKEX)	m-FINANCE
Japan	MUFG	Nomura	Tokyo Stock Exchange(TSE)	Mizuho Bank
Singapore	Saxo Group	Spark Systems	Singapore Exchange
Australia	The National Australia Bank (NAB)	BAXTER-FX	ACY Securities	26 Degrees
Canada	TickTrade	CIBC	RBC Capital Markets

 

🎯 The Importance of Market Liquidity

Liquidity is essential in any financial market. A liquid market ensures more competitive quotes and smoother transaction flows.

Low liquidity results in:

• Wide trading spreads

• Increased market risks

• Sharp price fluctuations when large orders are executed

• Reluctance of institutional investors to participate

An easy way to understand liquidity's role in the Foreign Exchange market is by comparing a major pair (e.g., GBPUSD) with an exotic pair (e.g., USDTRY). The trading spread of the exotic pair is often many times wider than that of the major pair.

 

 

💹 The Most Liquid Forex Pairs

• The most liquid Forex pair is the Euro against the US Dollar (EUR/USD). 🔗 Link: EUR/USD Stats

Its trading spreads can be as low as 0.2 pips.

• The second most liquid pair is the US Dollar against the Japanese Yen (USD/JPY). 🔗 Link: USDJPY Stats

Its trading spreads can be as low as 0.4 pips.

• The third most liquid pair is the British Pound Sterling against the US Dollar (GBP/USD). 🔗 Link: GBPUSD Stats

Its trading spreads can be as low as 0.5 pips.

Other liquid Forex pairs include the US Dollar against the Swiss Franc (USD/CHF) and the Australian Dollar against the US Dollar (AUD/USD).

 

🔗 Interesting Links: https://liquidityfinder.com/providers/type/broker

 

■ Liquidity Providers and Forex Brokers

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