Liquidity Providers and Their Impact on FX Brokers

The Liquidity market can be a challenging environment, and brokers need to navigate it with skill and expertise to succeed. In this competitive landscape, finding the right liquidity provider is crucial and brokers must weigh several factors when selecting a Liquidity provider.

Finance Magnates spoke with Tal Dar, VP of Institutional Sales at Vantage Connect, who gives his in perspective on the industry at large, and an insight into Vantage Connect’s institutional offering.

When it comes to choosing a Liquidity provider (LP), what are the most important factors for brokers to consider in today's fiercely competitive FX market?

A friend of mine within the industry had a poll on LinkedIn the other day, about the most important requirement when searching for a Liquidity Provider, and as expected ‘Pricing and Execution’ was a clear first. One thing is for sure, in a competitive market, clients want to ensure that all the boxes are ticked.

You can have great pricing and execution but in today’s market, if a client cannot reach trade support, for example during Asian trading hours, they may choose another counterparty who have a follow the clock support setup. Is the broker too small? What if they are on the wrong side of a big trade, or revenue share deal? Can they take the hit? In a competitive industry, brokers have the luxury of picking from the few that can offer the whole package.

How is the competition in the market?

In an increasingly competitive market, with more and more new providers entering the market, it has naturally led to thinner profit margins. A contributing factor has been the introduction of the permanent minimum capital requirement (PMCR) by MIFID, forcing many brokers to relinquish their retail license and move into the institutional space.

The majority of brokers have multiple liquidity providers, but how do they decide which will make their counterparty list? The market rates, which include minimums and fees, are pretty much around the same mark. The other questions naturally are, Is the execution where it needs to be. Is the tech there? How strong is the risk team, who can take x volume or flow?

Ultimately it is the clients who are the winners, as they are making the LPs work harder for their business, this in turn ensures the overall quality of service within the industry improves.

We also get the more complex requirements, which are not pertinent to the majority of brokers, for example, a super large credit line for a broker in a different time zone, or Stocks from a non-popular index which would be limited to a select few LPs.

In the digital age, how important are face-to-face meetings in building and maintaining strong business relationships in the FX/CFD industry?

On a recent trip to Dubai we met up with clients, and some we had not seen in over 3 years. In the virtual era, the trip was a reminder of the level at which you can connect in person.

Some of the previous expos in the industry had been converted to virtual events during/post covid. The plus side was having a wider reach, and having access to large data, but in no way matched the way in which you strengthen and build more meaningful business relationships in person.

What trading solutions does Vantage Connect offer to institutional clients?

As well as Liquidity, Vantage Connect provide solutions for Risk and technology, through to full White label solutions for all our clients (which include hedge funds, family offices, brokers, and asset managers).

We aim to be a leading one stop shop for institutional traders and will continue to add to our products and services, as we continue our growth. Dealing with a diversified client base of all different sizes has allowed us to solidify our overall offering, to ensure all our clients' needs are met.