How to select a liquidity provider?


More and more people are taking the decision to invest in the Forex market. Some traders treat it as an additional source of income, others do it to earn the living. No matter what motivation drives them, they need to choose the right liquidity provider.  They often wonder what factors to take into account when choosing the liquidity provider. Is it better to trade with a few LPs or stick only to one?

A liquidity provider acts as the purchaser and seller of investment tools. His task is to help traders effect transactions. They render their services to individuals and institutions.  When choosing an LP, it is advisable to check if he has an established market position, because if yes, we can assume that he has long-term experience and we will be able to use his services for a long time and trust him. We should also carefully examine LP’s offer and check whether it is regularly expanded by new tools, like for example cryptocurrency or other solutions. Another issue worth considering is the transaction costs the LP charges. They may considerably vary, so we have to select the most reasonable offer. For some LPs, the business they run on the FX market is only additional and they are not fully committed to their customers, so we should see if it is possible to contact the LP by e-mail or phone round the clock. We should examine if an LP works during the weekend, because if not, we may have a problem to trade on Saturdays and Sundays, which is possible in some countries. We should also verify how fast a liquidity provider executes the orders. The LP will also inform us of the market data, so we should ensure they are given quickly and that they are reliable. On the Internet, we can find forums on which FX market participants exchange opinions on different LPs and there are lists of the best liquidity providers. The recommendations of LP’s customers are often the most reliable source of information so it is advisable to use this opportunity.

Newbie traders and brokers should also decide if they prefer to cooperate with only one liquidity provider or more. Using the services of one LP ensures lower costs of trading, but on the other hand, the risks connected with investments are larger. If our LP has problems with providing enough liquidity, experiences some technical problems or raises fees to a level that is unacceptable for us, we can always turn to other ones we cooperate with. And finding a new one may take weeks or even months.



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