Benefits of having multiple liquidity providers in a brokerage setup

What are the benefits of multiple LPs?

In the fast-paced world of multi-asset financial brokerage, having access to multiple liquidity providers (LPs) is of essential importance. This blog explores some of the benefits and significance of incorporating multiple liquidity providers and trading counterparts in a broker’s setup.

Backup Liquidity Provider

It is always important for a broker to maintain a high degree of redundancy across their trading setup, with pricing and trading continuity being most crucial. In case the primary LP experiences technical issues, the broker can redirect their trade flows to the backup LP to minimise downtime and allow uninterrupted service provision to their clients.

Setup Optimisation

Different liquidity providers are better suited for different products and types of flows, so maintaining multiple LPs helps brokers optimise their trade flows. For example, if LP 1 is offering a competitive pricing for FX products while LP 2 is offering a better Metal pricing, the broker can direct their FX trades to LP 1 and Metal trades to LP 2, to create a better offering for their traders.

Increased Range of Products

By using multiple LPs with offerings spanning across different assets and classes, a broker can achieve a more extensive product offering, which allows them to market better and target a wider customer base. For instance, if traders express interest in crypto CFDs, adding an LP specialising in such products can enhance the broker’s offering.

Liquidity Depth

By using multiple LPs, a broker can achieve a more significant depth of the market suitable for handling larger trade flows from customers. For example, if the available liquidity from primary LP is insufficient, having a secondary LP helps build a more robust liquidity book, ensuring smooth execution for customer orders.

Competitive Pricing

Having multiple trading counterparts drives competition between them, even if you are not actively aggregating and just directing trades flow to specific LPs (let’s say on a product-by-product basis), the LPs will strive to be as competitive as they can be in order to win that dedicated flow.

Pricing Stability

Sourcing real-time pricing from multiple LPs helps to ensure price stability and remove any price spikes / off market prices from the price feed, by actively comparing and filtering price updates with a disproportionate difference.

Monitoring LP performance over time

Another important point to mention is that the offering of liquidity providers is dynamic, and evolving, based on many factors – what may be offered today can become different in the future. Therefore, it is important to have the ability to continuously monitor the pricing and trading performance of each LP and make adjustments when and if needed. And the bridging technology can fulfil this requirement.

Conclusion

In the ever-evolving landscape of liquidity provision, integrating multiple liquidity providers into a broker’s setup is crucial for optimising trading operations. Continuous monitoring of LP performance and adaptation with bridging technology enable brokers to stay agile in meeting the evolving demands of traders and the market.

Find out more from Centroid Solutions

One of Centroid’s core solutions is the Liquidity Management and Order Execution solution, Centroid Bridge (now known as CS 360). If you’d like to find out more about our technology solutions, please fill in the Contact us form or email us on sales@centroidsol.com to find out more.