The financial markets have become a golden age of trading, offering great opportunities for capital growth and to start a successful cryptocurrency, Forex, or other trading business. The infrastructure of a trading platform is a complex one that combines many different sets of programs and systems in order to provide an optimal environment for creating orders, as well as placing and executing them. Through a trading platform, there exists a system that connects traders with liquidity providers for the purpose of enabling transactions, and this is known as a liquidity bridge.
Liquidity Bridge as an Important Element of the Trading Process
Liquidity bridge provides direct access to the international banking market to traders via an electronic trading platform that is similar to MetaTrader 5, which facilitates direct access to the market through the use of software. In contrast to the direct transmission of orders from an individual trader to liquidity providers, such as large brokers, banks, and other financial institutions, this platform is designed to organize trading between a broker and a client. With the help of end-to-end processing technology, the liquidity bridge allows traders to receive quotes and liquidity without the need for significant intervention from their brokers. The broker is, on the one hand, able to provide better quality trades, while on the other, he or she is able to reduce its own risks. It is important to distinguish between two types of liquidity bridges, which correspond to ECN and STP technologies.
Types of Liquidity Bridges
Let’s take a little closer look at the two existing types of liquidity bridges that brokers use.
- STP Liquidity Bridge
The Straight Through Processing protocol (STP) facilitates the direct communication between brokerage firms and banks, which trade directly on the interbank market, so that clients’ orders can be executed directly by the liquidity providers – banks. Clients benefit from better execution when there are more liquidity providers available. As a result of the availability of real-time markets and the possibility of instant execution without the involvement of a dealer, most traders consider this system to be extremely appealing.
Liquidity bridges based on the STP technology provide direct communication between clients and liquidity providers. Providers generally aggregate many sources of liquidity, which leads to increased liquidity and lower prices. It is possible to choose between a floating or fixed spread under the STP system. While large banks provide the bulk of liquidity, they typically charge a fixed spread, whereas an aggregator with access to all buy and sell offers can choose which price is most appropriate. Sometimes, this can result in a spread of zero or even negative values.
- ECN Liquidity Bridge
Because of the rising popularity of trading among private traders and the increased level of transparency, ECN, in which orders are placed on the market by all traders (not only market makers), is extremely progressive. To be honest, clients worldwide may be connected thanks to ECN liquidity bridges, which considerably boost overall turnover, promote round-the-clock trading, and enhance liquidity, resulting in quicker execution times and spreads.Moreover, in essence, the ECN system functions as the counterparty to all trades.
Since ECN networks do not use market makers from exchanges or OTC markets, they are also classified as alternative trading systems. The majority of the orders placed in ECN are limit orders with predetermined transaction prices, and so they can be partially or fully executed after hours.
Evaluation Criteria for Selecting a Liquidity Bridge Provider
To decide on a liquidity bridge provider, there are several factors to consider.
- Pricing
Buying a product can be a very rewarding experience if you are able to get the most favorable deal. There are several ways in which you can assess the price of a product. In choosing a liquidity bridge provider, you should take into account its pricing as one of the criteria. A comparison website can be used to search for prices or you may contact the provider directly if you wish to learn how much the provider charges. To make an informed decision, you should have an understanding of what other providers charge for similar services
- Technology
Working with a provider of a liquidity bridge requires meeting several vital criteria, among them is technology. The provider needs to be outfitted with the newest, most cutting-edge technologies. Their goal is to provide you with the best service possible while ensuring that the trade procedure goes smoothly. If they have any information about their goods and services on their website, you can check it out. Additionally, speak with the service provider directly and inquire about their offerings. It will benefit you if you have a good picture of the provider’s personality and can decide whether or not they are worth your time and effort.
- Customer Service
When choosing a good liquidity bridge provider, pay close attention to the level of customer support. Customers that experience problems working with the technology will usually contact a customer service department for assistance. Quality customer service will help resolve issues quickly, which is sure to have an impact on overall customer satisfaction.
Conclusion
Any financial market’s primary engine and a crucial component of trade is liquidity. A successful brokerage business depends on both a trustworthy liquidity provider and a solid liquidity bridge. With the advancement of technology, new mechanisms to transfer liquidity from suppliers to brokers are predicted to emerge. These systems will surely improve the speed, quality, and efficiency of both individual processes — for instance, placing orders — and trade in general.