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About Liquidity

 

 

About Liquidity

Most of the global liquidity is provided by large investment banks that they are usually referred to as Tier 1 liquidity providers. Some of the Forex Brokers are connected to investment banks in order to receive the bid and ask prices from their own system which are usually very stable. By connecting themselves to multiple liquidity providers they can improve their rates and their spreads as they will be able to offer to their clients the best bid and best ask rates they receive from their liquidity providers.

On the other hand, there are some Forex Brokers that act as Liquidity Providers themselves by offering their own bid and ask rates to their clients. This specific type of Forex Brokers, act as Market Makers with their own Dealing Desk but this does not restrict Market Makers to hedge their risks with tier 1 liquidity providers when they believe that they need to do so.

In order to connect to multiple liquidity providers, Forex Brokers tend to use either bridges that automatically connect their own platform with another platform that acts as an ECN environment or manual covering. There are a number of different bridges that allows Forex Brokers to connect to an ECN environment in nowadays. Nevertheless, you need to take into account that even when your Forex Broker is connected to an ECN/ESTP environment it doesn’t necessarily mean that the Broker covers back to back all your orders. The bridges are usually design in a way that allows Forex Brokers to select which orders or group of clients are meant to be processed to the ECN environment and (A Book) which to remain not covered (B Book). The same principle exists for Market Makers that act as liquidity providers .it is up to the discretion of the Broker which orders will remain not covered and which they have to cover with another Liquidity Provider.

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