ABOUT THE AUTHOR: Hüseyin Gürsöz is the CEO of Meta Technologies. The company has offered and managed FX white label and brokerage solutions since 2010.
Last Friday, the Friday after Black Thursday, the USD/CHF and EUR/CHF showed us the importance of liquidity for an FX brokerage firm. Whether your brokerage is a market maker or an STP, you will encounter the problem of clearing your positions in volatile market conditions.
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Most brokers use a price aggregator that offers the best bid/ask prices from several liquidity providers. But on Friday, the USD/CHF and EUR/CHF price movements proved that even a full-fledged price aggregator is not enough for proper risk management.
Small brokers usually don’t have research departments to analyse market conditions and future volatility predictions, they have to follow the margins on the exchanges where FX pairs and commodities are traded. The EUR/CHF’s margins increased four times and the oil margin increased two times before the high market movements.
STP brokers cannot get proper liquidity at unexpected market conditions while market makers quote their prices. In conclusion, you should keep your clients away from trading high margined products even if you are an STP or market-making broker and, instead, add one STP and one market-making broker to your liquidity pool.
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