Selecting the appropriate FX liquidity partner for your business is vital to enabling a successful service that your customers will continue to use.
Whether you are a digital banking platform like Jetonbank that facilitates cross-border payments or an online broker that specializes in forex trading accounts, your end-users depend on you to provide them with the fastest and lowest-cost currency conversions and trades possible.
Running a business that trades internationally requires you to transact in foreign currencies on an ongoing basis. This means you need an effective foreign exchange (FX) liquidity solution that can provide fast and low-cost access to currency markets.
In today’s globalized economy, having liquidity problems can be one of the most significant impediments to scale for a business.
However, with the myriad of liquidity service providers and complex offerings in the FX markets, it can be difficult to find a trusted partner that meets your needs. This article will guide you through the key factors to consider when choosing the right liquidity provider for your business.
What is FX Liquidity and Why Does It Matter for Your Business?
In the broadest sense, FX liquidity is defined as the number of buy and sell orders in the forex market at any given time. The most liquid currency pairs will be the ones that can be easily traded at any given moment with large volumes without significantly moving the price.
If you are a business like Jetonbank that is focused on streamlining international payments and currency exchanges for businesses and consumers, you will need to have deep pools of forex liquidity at your disposal to process client transactions with ease.
You need access to a reliable liquidity provider with multiple liquidity sources integrated into your platform so you can handle client trades immediately.
If not, you risk clients experiencing delays, less-than-favorable exchange rates, or even failed trades, which will obviously reflect poorly on your business.
An online forex trading broker, on the other hand, will need to ensure that the global foreign exchange liquidity that they provide is sufficient to meet trader needs in terms of speed and volume, among other things.
If a market is thin, traders are likely to experience greater spreads or be unable to fill their entire order at once, which can significantly increase slippage and trading costs, reducing overall profitability for your clients.
As you can see, the quality and availability of a business’s underlying FX liquidity ultimately has an impact on how well they will be able to provide a service that customers will want to use.
Customers demand fast, low-cost transactions, which is why it is so important for companies to choose the right liquidity provider that will support their business needs.
How Do You Evaluate FX Liquidity Across Different Service Providers?
There are a few things to consider when looking at potential forex liquidity service providers to understand the true depth and breadth of their markets.
- Currency pairs - Do they offer liquidity in all major currency pairs, like EUR/USD and most minors as well? The more pairs you can offer, the better you can serve clients.
- Trading volume - Do the providers make known their typical daily trading volume per currency pair? The higher the number, the thicker the market and easier execution.
- Spread size - What is the average size of their spreads? Tight spreads mean lower costs to trade. Watch out for maximum spread widening potential in volatile conditions.
- Execution speed - How fast can they fill an order, and what are their SLA’s around order execution speeds and connectivity under normal market conditions and in times of crisis?
- Platform uptime - How available is their platform and are there any connectivity issues that occur? Look at historical uptime statistics and service level agreements (SLA).
- Settlement - Can the liquidity provider easily and securely transfer funds to and from your accounts.
Analyzing the hard data of these metrics as well as gathering user experience data across multiple providers will ultimately give you a better understanding of the depth and quality of their FX liquidity.
What Features Should a Reliable FX Liquidity Provider Offer?
In addition to providing robust core liquidity, a good and forward-thinking provider will offer other tools and services to give their customers the best opportunities in the market.
- Direct market access - The ability to access liquidity directly, as opposed to through some sort of broker, will increase efficiency.
- Advanced trading tools - Access to various tools, like algorithms and hedging strategies, will allow sophisticated clients to maximize their returns.
- Liquidity aggregation - Access to multiple liquidity sources, including other liquidity brokers, ensures resiliency, even during times of stress.
- Low latency connectivity - Low-latency execution speeds of under 10 milliseconds through the use of co-location and other methods is highly beneficial to high-frequency trading (HFT) clients.
- Institutional-grade security - Strong authentication and encryption tools along with audit trails will help protect large funds.
- 24/5 multilingual support - A global business requires support when global markets are open.
- Bespoke integrations - Customized API solutions allow third-party trading platforms to seamlessly connect to the FX liquidity service for trading platforms.
A company like Jetonbank that offers these types of advanced yet flexible features and solutions allows its partners and traders to take full advantage of real-time opportunities and trends across borders.
How Does FX Liquidity Impact Currency Trading Efficiency?
For any business that is focused on enabling forex trading, from individual clients who open a brokerage account to a proprietary trading desk for an investment firm, FX liquidity lies at the heart of trading performance.
Inadequate liquidity will lead to such things as:
- Wider spreads - There are simply fewer counterparties to take the other side of a trade, so the market makers need to widen the spread between the buy and sell price.
- Higher slippage - Connected to spreads, slippage is the difference between the expected execution price and the actual execution price of an order. Thin markets will see increased slippage.
- Order inability to fill - Sometimes very large trades simply will not find enough liquidity and counter-orders to transact.
- Lack of market depth - A lack of depth in the market beyond the best bid/ask prices will make it difficult for traders to find liquidity beyond a few pips away from the midpoint.
- Price volatility - Thin order books mean that order flow is much more likely to move the price, which leads to choppier and less predictable trading conditions.
By contrast, having access to deep pools of FX liquidity through a partner like Jetonbank will allow traders to execute large trades without issue, narrow spreads, and minimize slippage on both entries and exits. They will also be able to transact with more confidence during periods of elevated volatility and have more stable, tradable prices.
All of this will have an impact on the bottom line by helping to reduce trading costs and increase profit opportunities over time.
Why is Deep FX Liquidity Essential for Minimizing Slippage?
Slippage, as mentioned above, is the difference between an expected execution price and the actual execution price of an order. Slippage is an inherent “cost of doing business” associated with trading, but the amount of average slippage can be reduced with careful management.
The key to being able to minimize the impact of slippage is through access to deep pools of FX liquidity.
This is because it will allow a trader to:
- Place larger orders that do not move the market by as much, triggering less slippage. The more liquidity there is, the smaller the impact each unit of trade has on the market.
- Execute multi-layered orders across multiple price points in an effort to average out the entry and exit prices.
- Provide for the possibility of increased liquidity, even in times of high volatility, when slippage is more likely to occur. Large liquidity providers are more likely to be able to absorb short-term shocks.
- Use advanced order types, such as iceberg orders, which will hide the actual size of a large order, breaking it up into several smaller orders, in order to avoid the full brunt of slippage at any one time.
- Receive executable quotes that are truly competitive, reflecting the actual real-time liquidity that is available to them rather than receiving delayed, wider broker quotes that are more susceptible to slippage.
By partnering with a leading forex liquidity provider like Jetonbank, brokers, funds, and proprietary traders will all be able to rely on minimizing the “hidden” costs of execution across thousands of trades. This, in turn, will improve their profitability.
The integrated FX liquidity solutions provided by Jetonbank give partners the ability to fully maximize trading opportunities while also reducing costs, like spreads and slippage.
By tapping into Jetonbank’s diverse pools of liquidity across borders through optimized APIs, companies will be able to process even the largest client orders without issue.
Contact us today to learn more about partnering with Jetonbank as your one-stop shop liquidity provider. We are happy to discuss your unique needs and provide customized solutions that are designed to future-proof your business.
What Role Does Real-Time Data Play in FX Liquidity Services?
Real-time market data is the most important thing for a liquidity service. FX liquidity management relies heavily on real-time data to see the current exchange rates for the currencies they are trading so they can offer you competitive pricing. In addition, real-time data allows providers to execute your trades quickly and without error.
Liquidity providers get their pricing data from a number of different interbank brokers and trading platforms. The speed of these feeds determines how quickly a provider can execute client orders competitively.
Jetonbank has direct connectivity to major liquidity aggregators, so we can offer clients live rates with 0.5 pips spread even during volatile times.
Providers with advanced data analytics are also able to offer superior FX liquidity service for institutional clients. This helps liquidity providers source the best pricing and pass on more savings to their clients.
Real-time pricing also enables live integrations with other financial systems for automated trading. Quality of data and analytics is what separates the best liquidity providers from the rest.
How Can Poor FX Liquidity Affect Your Business Transactions?
Businesses are impacted in several ways by a lack of FX liquidity:
- Transaction costs rise with inadequate access to the currency markets. Providers must source liquidity on much narrower spreads. Clients pay higher exchange rates on every trade as a result. Small fees can add up to substantial costs over time.
- Settlements can be delayed as liquidity providers take longer to match buy and sell orders internally. Late settlements are damaging to business relationships and can hurt credit ratings.
- Hedging against FX risks to future profits becomes impossible. Liquidity pools are not large enough to support these strategies. Volatility can’t be effectively managed in the FX markets.
- Your reputation as a reliable trade partner can suffer if payment delays become common. Some customers will switch to more reliable providers if this becomes a pattern.
- Regulatory breaches are more likely during liquidity crunches as FX providers struggle to meet obligations like timely order execution. This can attract penalties from financial watchdogs.
For these reasons, it is essential to partner with a well-capitalized liquidity provider like Jetonbank.
What Questions Should You Ask Before Selecting an FX Liquidity Provider?
Conduct your due diligence before you sign up for any FX liquidity services.
Some of the questions you should ask are:
- What is their daily volume? The larger the players with higher volumes, the deeper are their pools of FX liquidity and the best FX liquidity service.
- What currency pairs do they support? Ensure that they can support the pairs that you transact in reality.
- What is the spread? The lower the better, but keep in mind that spreads widen in volatile markets.
- How quickly will orders be executed? Real time or near real-time is ideal. Confirm with providers.
- What trading platforms can be integrated with? Ensure there is compatibility with your treasury/ERP systems etc.
- How do they onboard clients? Look for those with a frictionless KYC process.
- Do they offer value-added services? Assess those that provide services like risk management and analytics.
- What is the financial health of the provider? Go for those that are well-capitalized and regulated like Jetonbank.
- Can you speak with their existing clients? Ask for referrals from businesses that use them to validate service quality.
Carefully vetting providers on these criteria will help you identify the most suitable FX liquidity provider for your business, whether you need FX liquidity service for fintech companies, for banks, or for institutional clients.
How Do Pricing Models Differ Among FX Liquidity Service Providers?
Liquidity providers also vary in the pricing models they employ for their services.
Some of the common models we see in the market are as follows:
- Volume-based tiered pricing – Applied by large brokers/banks who offer discounted rates based on the monthly volume that clients trade. Bigger volumes fetch tighter spreads.
- Transaction fee pricing – Providers charge a small fixed fee per trade instead of spreads. Popular for high-frequency, low value trades.
- Hybrid pricing – Full-service banks charge competitive spreads supplemented with modest account/transaction fees. Common among large corporations.
- All-inclusive fixed pricing – Offered by some niche providers, here flat monthly/annual fees are quoted regardless of volumes transacted. This helps budgeting but is often not cost-effective for low-frequency traders.
- Performance-based pricing – Applied by advanced players like Jetonbank where a portion of the provider’s gains from superior liquidity sourcing and hedging strategies are shared with clients.
Evaluate providers on an overall basis and choose an optimized solution rather than just looking at pricing alone.
Can Technology Integrations Enhance Your FX Liquidity Experience?
Technology is playing an increasingly important role in the delivery of liquidity solutions for corporate clients. Liquidity service providers are now leveraging digital platforms and APIs for faster and more seamless processes.
Here are a few ways technology can enhance your liquidity experience:
Jetonbank has built its FX liquidity infrastructure from the ground up with open architecture that makes it easy for clients to integrate with their existing treasury and ERP systems using published APIs.
Automated trading together with synchronized order and settlement processes eliminates manual duplication errors in transaction management.
Advanced analytics solutions also make for a better client experience. Applying AI/ML techniques to trading patterns enables FX liquidity providers to offer hyper-personalized insights into currency movements, risk management, and hedging strategies.
Actionable alerts on unusual market activities, automatically generated customized hedging strategies, and triggers sent to traders etc. empower the client to make smarter decisions.
The ability to provide a fully integrated risk management dashboard with live P&L, exposure and hedge effectiveness is another benefit for end users.
Visualizing the data in real-time helps clients remain proactive in their management of currency volatility.
Technology excellence is no longer a competitive differentiator; it is now an expectation from the client’s perspective.
Partnering with a tech leader like Jetonbank who is building for the future of finance ensures clients stay ahead of the curve with world-class liquidity tools and solutions.
Contact a Jetonbank representative today to discuss how our customized FX liquidity services can help you maximize your cost savings, increase operational efficiencies and enable proactive risk management for greater certainty in global trade. The future of finance is digital, and Jetonbank is already here.
