Liquidity: The ultimate deal-breaker for FX and Crypto traders

Rick Steves

Brokers and exchanges need to make sure they gain access to the right liquidity pools and LPs before their clients give up on them. Because they won’t come back.

Liquidity. A term that draws little attention from retail traders, but one of the most important in the finance industry nevertheless: it describes the amount available for trading at any given price.

It translates to the ability of a financial instrument to be easily converted into cash – or coins, to be inclusive of the crypto asset class.

The higher the liquidity, the higher the stability in any given market since buy or sell orders can be filled more quickly due to the larger number of market participants. This translates to few fluctuations in price.

High liquidity also means improved prices as a scaled market tends to push spreads down. This is why brokers offer lower spreads for major FX pairs when compared to minors, exotic, and cryptos.

From a technical analysis standpoint, charting becomes cleaner when more liquidity is involved, thus prompting greater technical accuracy.

Retail trading volumes have skyrocketed since last years and that trend is unlikely to lose steam. The trading industry has improved its ability to attract new customers in new markets with new offerings including the very new and hyped asset class that is crypto.

B2Broker, a technology and liquidity solutions provider, is a leading industry player that has seen the accelerating demand from brokerages requiring such services.

“In particular, the launch of B2Margin, our white label margin exchange trading platform has been a great success thanks to the recent trend of margin trading”, said Arthur Azizov, CEO at B2Broker.

While most retail traders don’t understand what liquidity is nor wish to know, FX and Crypto trading platforms should take liquidity in very high regard.

It is the ultimate deal-breaker for traders: they want low spreads, they want their orders to be executed and fast, they want to do proper technical analysis. All these are made possible with a solid liquidity offering.

This calls for a quality liquidity provider, one that ensures market depth, fast execution, competitive pricing, data feeds, prime brokerage liquidity, and a reporting system for regulatory compliance.

“That is where we excel and what we are renowned for”, Mr. Azivov continued. “B2Broker delivers one of the deepest liquidity pools in the industry for Forex, Metals, Crypto and CFDs, as well as being the leading Crypto CFD liquidity provider with 100+ trading pairs.

“Our expertise and technology enables us to offer customised liquidity solutions tailored to our clients’ exact execution needs.”

In regard to the cryptocurrency markets, their liquidity is difficult to determine as they lack a regulated data feed like the consolidated tape for U.S. equities.

That, coupled with the high number of exchanges and jurisdictions makes it difficult to calculate high-frequency bid-ask spreads: an important metric when assessing an exchange in that it represents the costs of immediately buying or selling an instrument.

Characterising liquidity across exchanges is important for investors, traders, and hedging strategies that can be negatively affected by the costs of illiquidity.

As the ecosystem matures, competition within the industry requires brokers and exchanges to aggregate as much liquidity as possible from varied sources in order to satisfy the demand from traders.

It is virtually impossible to attract clients to an exchange without sufficient liquidity. Brokers and exchanges need to make sure they gain access to the right liquidity pools or exchanges and liquidity providers before their clients give up on them, because they won’t come back.

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