Tips for Startup Brokers: Choosing Your Liquidity Provider

Mar 24, 2020

With two chapters of our article series for start-up brokers - Where Do I Begin? and Choosing Your Platform Provider behind us, we now reach volume three, no less important and equally detrimental to the proper functioning of your business. The choice of a liquidity provider: how do we go about this?

Similarly to choosing a platform provider, it all comes down to understanding your needs and figuring out if the LP in question caters to them. What should one ask themselves?

1. Who is your LP?

What do you know about your LP? Primarily, where are they based and are they regulated? Simply put, this is how you check the trustworthiness of your provider. Moreover, regulated providers often grant the perk of access to trade reports, tick data, swaps and rollover reporting, and much more.

It’s also vital to keep in mind that some regulated LPs are not authorized to work with unregulated brokerages. So there’s also the question of whether you are regulated, or when you plan on receiving your regulation.

2. What do they offer?

In the modern world of today, multi-asset liquidity and a deep order book is an absolute must. What does your LP have to offer? Not all LPs can provide a full scope of instruments, but the more - the better. There is a wide variety and it depends what you want to offer your clients. Instruments vary from FX pairs, shares, indices, commodities and even ETFs. While it is true that having a broader variety can attract more traders, it may land up costing more.

3. Is their execution speed satisfactory?

We are talking about execution of at least below 100ms, without rejects or requotes. Execution speed is key particularly during unexpected events, so it’s vital you not only understand clearly what you are signing up for, but also check the execution is what it’s made out to be. Having secure and reliable executions means your traders have better trading standards and can, in turn, attract larger traders.

4. Are the feeds reliable?

You’d want a liquidity provider that offers stable and reliable feeds to reflect market prices. Traders do not like to see gaps in the chart in regular trading sessions. They also demand historical data so that they can make their forward-looking analysis. For this purpose of technical analysis, cTrader currently offers a total of 54 time frames for traders to choose from when making their investment decisions.

Furthermore, the ability to compare prices in a manner that’s convenient to you in particular is very important to have. An access to historical market data and a complete order book can go a very long way in your operations.

5. Can you afford them?

Where would we be without our budget? Look for hidden costs. Not only should a reputable LP offer competitive spreads and volume fees, but also no sky-high overnight fees and reasonable collateral deposits.

The choice of an LP, just like any part of your startup broker business, isn’t one to rush through. Luckily, cTrader is integrated with some of the most reputable LPs in the industry, with an additional option of integrating any new ones of your choice via our FIX API. We acknowledge that the selection is large, but our Sales team, equipped with years of industry knowledge and experience, is there to help you find the LP that responds to your personal goals and needs.

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