Major Liquidity Providers and Forex Brokers

Liquidity providers (LPs) are financial entities that offer retail brokers the necessary bids/asks for their clients’ orders...Liquidity providers (LPs) are financial entities that offer retail brokers the necessary bids/asks for their clients’ orders. This is happening by acting at both ends of currency transactions. In the Forex market, the top liquidity providers are called Tier-1 providers and traditionally offer the most competitive spreads.

Forex brokers that connect with quality liquidity providers can offer their clients a trading environment without high slippage and re-quotes. This is why liquidity providers play an important role in the process of currency trading.

 

Two 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 the Foreign Exchange market liquidity. All Tier-1 liquidity providers are bridged through the Electronic Communication Network or the ECN.

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

Tier-1 Liquidity and Forex Brokers:

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

(2) Tier-2

Tier-2 liquidity providers act as middlemen between the Tier-1 liquidity and brokers.

  • Key Tier-2 liquidity providers in the Foreign Exchange market include firms such as CurreneX, FXCM Pro, LMAX, and Swissquote

Tier-2 Liquidity and Forex Brokers:

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

  • STP Forex Brokers are brokers that access Tier-2 liquidity

STP stands for Straight Through Processing, while ECN stands for Electronic Communications Network. The transactions of ECN/STP Forex brokers are executed directly to a Tier-1 or a Tier-2 liquidity provider.

 

 

Market Makers

Brokers who cannot access Tier-1/2 liquidity are categorized as Market Makers or else Forex agents. These firms operate through a dealing desk (DD) and create their own market within the real market. These firms are often accused of having a conflict of interest with their customers. The reason is that they are forced to take the opposite side of their customers’ positions. Market makers offer a trading environment of wide trading spreads and high 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 a retail broker with access to the trading liquidity pool of the largest banks.

  • A Prime of Prime (PoP) broker can access the Tier-1 bank's 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 when trading directly with a Tier-1 bank)

 

Bridges with LPs

A Forex broker will usually connect with more than one liquidity provider, in order to take advantage of the best quotes obtainable from several liquidity sources. This is happening by establishing an electronic bridge that automatically connects the broker’s own trading platform with a third-party trading platform that acts as an ECN. The Forex broker can create different groups of clients, and choose which group orders will be processed by the ECN, and which group orders will be filled by an internal book.

This is a list of some of the key liquidity providers worldwide (per 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 Liquidity and Most Liquid Forex Pairs

Liquidity is necessary in any financial market. A liquid market makes quotations more competitive and facilitates transaction flows.

A low level of liquidity means:

  • Wide trading spreads
  • Increased market risks
  • Sharp fluctuations in pricing when large orders are executed
  • Institutional investors are not willing to enter

An easy way to understand the role of liquidity in the Foreign Exchange market is by comparing the quotation of a major pair (i.e. GBPUSD) with an exotic pair (i.e. USDTRY). The trading spread of the exotic pair will be multiple times more expensive than the spread of the major pair.

 

True ECN Forex Trading -Low Slippage and as low Trading Spreads as 0.1 pip on EURUSD..

 

The Most Liquid Forex Pairs

The king of liquidity in the Foreign Exchange market is the Euro against the US Dollar (EUR/USD).

  • The trading spreads of the pair can be as low as 0.2 pips

The second most liquid Forex pair is the US Dollar against the Japanese Yen (USD/JPY).

  • The trading spreads of the pair can be as low as 0.4 pips

The third most liquid Forex pair is the British pound sterling against the US Dollar (GBP/USD).

  • The trading spreads of the pair 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

ForexExperts.net

 

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