Liquidity in Forex depends on the assets traded on the market, which can be either weakly liquid or highly liquid.

Highly liquid assets can be easily converted into money, but poorly liquid assets can be difficult to sell in a short time. Just today we will talk about what liquidity is in Forex and who its suppliers are.

Liquidity in Forex - what is it?

The term “liquidity” itself means the ability to quickly sell or buy a financial instrument at current prices.

A market is considered liquid when a certain number of trading participants (sellers/buyers) make the assets liquid, allowing them to tight deadlines accept monetary form. Of all the existing variety of markets, today it is considered the most liquid.

Today, Forex market itself is already a highly liquid exchange, since the total daily turnover of money on transactions here exceeds five trillion US dollars. Liquidity on Forex depends on the number of transactions carried out on any currency pairs. The more transactions are concluded on them, the more liquid they are.

So the most liquid currency pairs are:

• EUR/USD
• USD/CHF
• GBP/USD
• XAU/USD and some others.

Liquidity in Forex is the highest because there are both buyers and sellers of currencies around the clock, and in large quantities. The currency market does not undergo sharp fluctuations even when strong crisis shocks occur, since money simply cannot take off and disappear - it will always be exchanged or bought. If one of the currencies in a pair depreciates, then the second will certainly rise in price.

Such a high level of liquidity on Forex is possible thanks to the ability to carry out transactions of any volume and direction almost instantly. What circumstances influence the liquidity of the Forex market?

What factors and financial structures influence the liquidity of the Forex market?

Liquidity in Forex is so high due to the following factors:

Firstly, a large number of participants, the majority of whom are government agencies that implement their monetary policy through the foreign exchange market.

Also, large trading participants include all kinds of commercial financial institutions, international banks, whose interbank activities greatly affect the liquidity of certain currencies, and, accordingly, on the market as a whole, other structures, the specifics of whose activities already border on an unlimited level of their own liquidity.

The second point is that liquidity in Forex depends on the round-the-clock functioning of the market, as well as the overlay of time. This circumstance makes it possible to carry out the necessary trading operations without taking into account borders and time zones.
Thirdly, the foreign exchange market operates with enormous volumes of money supply. (the cost of a single transaction), here are often hundreds of times higher than similar indicators on other markets and exchanges.
Well, fourthly, the product itself (money) traded on Forex already has 100% liquidity.

News video: Interbank market and Forex liquidity

Due to all of the above, when concluding transactions, he can always be confident in the operations he is conducting and not even think about who exactly will play the role of his counterparty. Increased liquidity on Forex is not only an advantage, but also the main prerogative of any investor. And Forex meets this requirement like no other market, which is why its popularity is growing every year.

Liquidity providers – who are they? And how their activities affect the Forex market

So, we have discussed what liquidity is in Forex, and here is who are its suppliers? As mentioned above, the number of applications for transactions on Forex is very huge and this makes it possible for its participants not to worry about the availability of counterparties.

Large banking structures, for example:

• "Deutsche Bank"
• largest Bank of America
• "Saxo Bank"
• "Citibank"
• investment funds,
• government agencies,
• large international corporations and the like.

They are the main link - liquidity providers of the Forex exchange.

These liquidity providers periodically turn to the foreign exchange market not only for reasons of currency speculation, but also for other purposes. For example, to purchase a certain amount of money in order to open a new branch in some country. Or one of the companies carries out currency exchange with another. Of course, in order to avoid risks, the second participant in the transaction will contact the counterparty and make a certain transaction, which will be a guarantee to ensure his safety.

But at the same time, the counterparty does not want to be in the red and will turn (derivatives of the simplest instruments tied to the financial market).

Even from the examples given, it is clear that companies, when making regular exchanges, lead to a whole series of transactions that make the initial exchange amount a much larger amount, which makes the foreign exchange market more liquid than all others.

What's the result?

We see that interbank activity cannot be so highly effective, because there is a big difference in turnover volumes. And if a simple market participant making an exchange can either receive or not receive a benefit, then transactions concluded by large market players (liquidity providers) will receive a profit under any circumstances.

Of course, large volumes of Forex transactions can only be available to its largest participants, who are not so quick to find a counterparty who is able to fully satisfy the needs of the company submitting the request. And any transaction made on the currency market must be blocked, that is, if one of the participants purchases a currency from the EUR/USD pair with 1 lot, then the other participant must block the order by selling the same lot - placing an opposite order.

Basically, it's like a tug of war, when you make the right forecast and the price goes up, then you have most of the rope, and the one who sells has a smaller part of this rope. In this case, transactions must be completed instantly.

How can a Forex trader benefit from knowing the principles of liquidity and its providers?

It is liquidity providers who must close open transactions almost instantly and very quickly, that is, how quickly your order will be executed will depend on them. Now imagine that there are hundreds of thousands of such transactions and all of them need to be closed. To overlap such a huge number of transactions, you need to have huge amounts of financial resources. But, as you know, brokers do not have such funds, so their activities directly depend on liquidity providers.

It should be immediately noted that to reduce slippage, brokers work with several liquidity providers at once, so when choosing them, pay attention to this - the more providers, the more reputable the broker.

From all of the above, we can draw a simple conclusion - for private traders speculating on Forex, market liquidity will be conditionally infinite, since the volume of their orders will be significantly smaller than the size of orders from various funds and large banks. Therefore, there will always be counterparties to their applications.

The concept of liquidity and its features

When assessing the activities of Forex brokers, much attention is paid to information about liquidity providers. The absence of such information is one of the signs of a broker’s “kitchen” methods of work and, perhaps, a serious reason to doubt his integrity. Who are liquidity providers and why is this so important? We’ll figure it out now.

What is liquidity

I've been running this blog for over 6 years. All this time I regularly publish reports on the results of my investments. Now the public investment portfolio is more than 1,000,000 rubles.

Especially for readers, I developed the Lazy Investor Course, in which I showed step by step how to establish order in personal finances and effectively invest your savings in dozens of assets. I recommend that every reader complete at least the first week of training (it's free).

The word liquidity (English: liquid) means fluidity, plasticity. In relation to financial markets, this is the activity of their participants, their readiness to make transactions. Obviously, the more participants in the market, the greater the demand and supply for traded instruments, the greater the maximum. In the Forex currency market, ensuring liquidity is of particular importance, because The turnover of this market reaches trillions of dollars per day. The difference in the scale and capabilities of Forex market participants has led to the formation of a vertical hierarchy, providing access to all interested individuals and organizations to carry out trading transactions. At the highest level of this hierarchy are such giants as Deutsche Bank, Barclays Capital, Morgan Stanley and some others.

Banks of the first magnitude with , form a general picture of the relationship between exchange rates. These are the main liquidity providers. However, the volume of their exchange transactions is such that the vast majority of other market participants cannot participate in them as independent counterparties. For this reason, there are a number of companies that act as intermediaries between these banks and other financial institutions. Such companies are called liquidity aggregators. Their task is to unite numerous clients who are not ready to enter the interbank market alone. The world's largest liquidity aggregators include Currenex, Integral, KCG Hotspot, CFH Clearing, LMAX Exchange.

How does this work

Based on the operating principle, liquidity aggregators are divided into 2 types: ECN (Electronic Communication Network) and MTF (Multilateral Trading Facility).

ECN aggregators work as follows:

• The order book is formed from quotes from liquidity providers and client pending orders.
• If there are suitable orders from different clients inside the order book, their orders overlap.
• If there are no such orders, the orders remain in the order book.
• Liquidity providers with the closest order to the next order are asked to confirm the transaction.
• If confirmation is received, the order is executed.
• Otherwise, the order is redirected to the next supplier.
• Finally, if none of the liquidity providers provides a suitable price, the client receives a new quote.

This mechanism of working in a dynamic market can lead to delays in the execution of orders, which makes trading on news difficult. Most aggregators operate on the ECN principle. The largest ECN aggregator at the moment is Currenex.

The difference between the MTF aggregator is that client orders are executed automatically if there is a corresponding price from the liquidity provider. Therefore, any slippage is absolutely excluded. The disadvantage of this algorithm is usually a wider spread. The largest MTF aggregators are LMAX and CFH Clearing.

The merging of client limit orders occurs using the FIX protocol (Financial Information Exchange - exchange of financial information). It allows two types of order execution: FOK and IOC. Execution of the FOK (Fill Or Kill) type means the complete execution of an order at a given price if an offer suitable in price and volume is received from the liquidity provider. No other order execution option is allowed here. IOC (Immediate Or Cancel) allows both full and partial execution of an order at a given price, after which the remaining part of the order can be executed at a different price. Sometimes liquidity aggregators are also called providers, since small brokers work through them. Such brokers are called STP (Straight Through Processing) brokers.

Who is the broker's liquidity provider?

As a rule, conscientious brokers do not hide their sources of quotes and liquidity providers, since such information works to improve their image and facilitates consideration controversial situations. For example, Alpari has Currenex, Roboforex has Currenex and Integral. By the way, Roboforex offers its services for subbrokers and others legal entities on withdrawal to liquidity providers, providing the necessary software and round-the-clock support from specialists. Forex Club lists a long list of major banks as its liquidity providers, including Barclays, Citibank and Credit Suisse. However, it is unlikely that access to them occurs directly. At the same time, Teletrade, Insta Forex, and FIBO Group refuse to provide such information, calling it confidential.

On the other hand, the very fact of indicating or not indicating such information is not yet a sufficient argument in favor of the reliability of the broker. And yet, some facts make you think. When the quotes of the GBPUSD pair suddenly fell sharply on the thin market on the night of October 7, 2016, most forex brokers gave almost identical quotes with a minimum of just below 1.2000. Roboforex, within a few seconds, gave lows below 1.1400, which exactly coincided with the quotes of the largest aggregators.

A number of Russian banks provide access services to individuals and legal entities, being liquidity aggregators. An example is Nefteprombank. Trading platform – minimum deposit – 50,000 rubles or $1000. As indicated on the bank’s specialized website (nefteprominvest.ru) for Forex traders, client orders are sent directly to liquidity providers.

At the same time, it is assumed that this is a rarity for banking Forex. Current market quotes are also available on weekends. The order book is formed on trading servers of Equinix, a company specializing in services for the world's largest brokers.

Examples from history

Probably, you may have a logical question: for what reason do the vast majority of brokers offer their clients ECN market accounts rather than MTF? The answer to this question can be considered the story of the largest forex broker and liquidity aggregator in the United States, until recently, FXCM. On February 6 of this year, the US National Futures Association (NFA) revoked FXCM's license. In addition, the broker was fined $7 million and received a lifetime ban on operating in the United States. The reason for such harsh measures was the broker’s fraud in the form of a game against his clients. The technology of this game was based on the ECN protocol. Traders from Effex Capital, which was founded by former FXCM employees, worked next door to the FXCM offices. Partnership relations between the companies arose in 2009.

It was on Effex Capital that aggregated orders of FXCM clients were displayed. Traders of this company artificially created quote slippage, slightly delaying the execution of client orders. The difference was so small that for at least 2010-2014, FXCM clients did not suspect anything. And, at first glance, there was nothing to blame FXCM for: all orders were issued for real transactions. During this time, Effex Capital's illegal profits amounted to approximately $77 million, 70% of which were paid to FXCM. With the MTF protocol, such fraud would be impossible. Of course, it is impossible to universally suspect all brokers using the ECN protocol of “kitchen” tricks, but there is reason to think about it.

For an ordinary client of a brokerage company, all this information may seem redundant. Nevertheless, there are benefits from it. From time to time, situations arise when controversial quotes knock out multi-million dollar deposits. This is where information about liquidity providers for a given broker comes in handy: what if the quotes are simply “drawn” for the sake of making a profit? Everything can be found out, so the motto for a conscientious broker should be: “Less is better.” If you have encountered similar situations, write in the comments.

Profit to everyone!

Hello, dear friends! Almost everyone who has traded at least a little on the stock exchange has heard about Forex liquidity, but not many know what liquidity is and who the liquidity providers are. Today you will finally learn what liquidity is, why you should be wary of low market liquidity, what is the difference between liquidity and volatility, which are the most liquid, as well as who the liquidity providers are and why they are so important when choosing a broker.

If you have not yet found a reliable broker, then we offer you an honest and independent rating of Forex brokers.

What is liquidity?

Liquidity in Latin (liquidus) means “flowing.” In the world of finance, liquidity refers to the ability of assets to be quickly exchanged for money. The faster the exchange occurs, the more liquid the asset. In accounting, the most liquid assets are money and securities, and illiquid - buildings, structures, equipment, that is, what is more difficult to sell. If you have the latest generation smartphone, then the likelihood that it will be bought at the price at which you bought it in the store is much greater than if you want to sell an old bicycle that is gathering dust on your balcony. Thus, a smartphone is a more liquid asset than a bicycle, that is, liquidity is primarily affected by supply and demand. Returning to the foreign exchange market, it can be noted that the presence of a large number of buyers and sellers indicates high liquidity of the market. At the same time, it is one of the most liquid markets. Daily Forex trading volumes amount to up to $5 trillion, and according to some experts, by 2020 the daily turnover could exceed $10 trillion. Another factor that makes Forex a highly liquid market is the need for constant currency exchange. At the same time, the largest volume of trading operations (over 70%) falls on currency pairs with the US dollar.

What are the advantages of high liquidity for a trader?

We have a little understanding of the concept of liquidity, but why a trader needs it, and how it can be useful in trading, may not be entirely clear to many. There is an old anecdote about a trader who saw the shares of a little-known company fall to the limit. Then he called his broker and told him to buy 100 shares of this company. The next day the shares rose several points, then he decided to buy another hundred shares. On the third day, when the shares had risen in price a little more, he called the broker and told him to sell the shares. "To whom?" – this was the broker’s answer. This is where market liquidity lies. If you bought assets on a low-liquid market, then be prepared for the fact that it will take a long time for them to be bought back from you at the price at which you would like to sell. Of course, Forex is a highly liquid market, but there are still trading instruments with low liquidity, this becomes especially noticeable when you operate in large volumes. For example, you want to buy 10 lots at a price of 0.76237, but in the order book there is only an order of 2.5 lots at this price. So you first buy 2.5 lots at a price of 0.76237, then 2.5 lots at a price of 0.76238 and the remaining 5 lots at a price of 0.76239.

If you trade in a market with high liquidity, then you get the best prices from liquidity providers (we'll talk about them later), low. high speed processing of orders (no requotes), low probability of slippage and a smoother schedule without price gaps (). Works better in liquid markets, and.

Liquidity and volatility

Many traders confuse the concept of liquidity with. However, the market can be both liquid and low-volatility. Let us recall that volatility shows the variability of price per unit of time. Spikes in volatility indicate a sharp change in price dynamics. Liquidity is responsible for price smoothing. An excellent example of a low-liquidity market is the following figure, which shows gaps and jumps in the flow of quotes.

When news is released on such a market, the price begins to fluctuate in different directions, this is due to the lack of liquidity providers in the market. In turn, liquidity serves as a kind of buffer that absorbs weak price fluctuations, resulting in a smoother chart.

Liquidity and trading sessions

As you know, the Forex trading day is divided into trading sessions, which is due to differences in time zones and trading times on currency exchanges. The greatest liquidity is observed during the London trading session and the beginning of the American session. During the Asian session, market liquidity decreases and almost completely subsides during the Pacific trading session. But this does not mean that the market is becoming absolutely calm. During times of decreased liquidity, the Forex market becomes more vulnerable to volatile market movements that cause sharp price spikes. Therefore, it is not recommended to trade during the Asian and Pacific trading sessions, due to the unpredictability of the market. Also, low liquidity is observed during official public holidays in the United States, Christmas holidays and during the summer holidays.

Liquidity of currency pairs

The most liquid currency pair is EURUSD, whose share on Forex accounts for more than 20%. This is understandable, since EURUSD is considered the most popular currency pair, and its pricing depends on the strongest economies in the world - the USA and the EU. Even during news releases, EURUSD continues to retain the properties of a highly liquid currency pair. USDJPY is the second most liquid currency pair, with a share of 17%. This is because the JPY currency is the most traded currency in the Asian market and ranks third in terms of trade turnover in the world after the US dollar and the euro. In third place in terms of liquidity of currency pairs is GBPUSD (11%). As you know, London is the largest financial center in the world business world, and the British pound sterling ranks fourth in circulation and is also a reserve currency in many Central Banks due to its high liquidity and stability of the UK economy. The remaining liquid currency pairs are presented in the figure below.

What is the danger of low liquidity in the foreign exchange market?

When trading in a low-liquid market, you need to know what dangers await you. Basically, they are all related to the deterioration of trading conditions:

1. Spread widening. If there are a sufficient number of orders in the order book, the spread approaches zero. But as liquidity decreases, the number of orders decreases and the spread widens. This is why it is not recommended to trade on holidays and during news releases - due to a decrease in the liquidity of the foreign exchange market;
2. Slippage. Low liquidity also increases the likelihood of slippage when trades are executed at a different price. Slippages occur during triggers, stop losses or take profits. Slippages can be positive (in the case of take profits) and negative (in the case of stop losses). For example, you set a stop loss of $10, but during the release of important news, liquidity decreased and the transaction was closed with slippage not in your favor, as a result of which you lost $30 instead of the stated $10;
3. Gaps. Another negative aspect associated with low liquidity is price gaps. This happens when there is a difference of at least 1 point between a sequence of consecutive quotes. Gaps can also be in your favor or against you.

Who are liquidity providers and where do quotes come from?

Forex quotes are a controversial issue among traders – where do they come from and why can quotes differ from person to person? Let's try to answer these questions. Quotes are received from liquidity providers through a special Currenex program (Integral and others), which serves as a bridge between liquidity providers and the trading terminal. Liquidity providers (or liquidity providers) are international banks, hedge funds and large brokers. The Currenex program broadcasts quotes from over 70 different liquidity providers, but this does not mean that all of them do this automatically. Quotes will only come from those liquidity providers with whom the broker has entered into an agreement.

Why do we need Forex liquidity providers? Let's say you want to buy 10 lots, for this someone needs to sell them. The broker can block them with counter orders of the same trades as you. But if the volume is too large, then the broker may not have enough own funds, and it brings your application to the interbank market, since large banks will definitely have the amount to satisfy your application. The more liquidity providers a broker has connected, the better prices and narrower spreads will be, and the faster your orders will be executed. It should be noted that this only applies to trading accounts using ECN/STP technology.

Since the Forex market is not an exchange market, but an interbank market, and brokers work with various liquidity providers, quotes may differ by 5-10 points, and in case of sudden movements, even more. This is the norm and a completely natural phenomenon.

See also who they are and what their advantages are.

List of liquidity providers

We have prepared a list of the most popular liquidity providers especially for you:

• Bank of America;
• Barclays;
• Baxter-FX;
• Citibank;
• CitiFX;
• DBFX;
• Deutsche Bank;
• Dresdner Bank;
• Ducas Bank;
• Dukascopy;
• EBS-Icap;
• FXall;
• FFastFill;
• GFT Forex;
• Goldman;
• Hotspot;
• HSBC;
• JDFX;
• JPMorgan;
• IFX Markets;
• LavaFX;
• Liquidus;
• MBTrading;
• Merrill Lynch;
• Morgan Stanley;
• Nomura Bank;
• Saxo Bank;
• Scandi Bank and many others.

Which liquidity providers do popular brokers work with?

This information is not so easy to obtain, since few brokers publish information about liquidity providers on their website, although in our opinion this information should be as accessible and transparent as possible. In the course of lengthy correspondence with technical support managers, it was eventually found out which liquidity providers the brokers cooperate with:

1. FXOpen – Bank of America, Barclays Capital, CITI, CRNX, Deutsche Bank AG, Dresdner, GOLDMAN, HOTSPOT INST, JPMorgan, LavaFX, Morgan Stanley, RBS, SG Paris, Standard Chartered, UBS;
2. FxPro – Barclays, Bank of America, RBS;
3. Forex4you – Exante, Interactive Brokers;
4. EXNESS – FXCMPRO, ADS Securities;
5. AMarkets – xOpen Hub.

Pay attention to which liquidity providers a broker works with before you start trading with them. Profitable trading for you!

A liquidity provider connects many brokers and traders together, increasing the liquidity of the resulting market. Higher liquidity is desired by everyone because it lowers spreads and thus lowers trading costs.

Straight Transaction Processing (STP) brokers in particular tend to work with many large liquidity providers to maintain their own liquidity and pricing offerings.

Liquidity providers are often large banks and other financial institutions(Bank of America, Citibank, Deutsche Bank, Saxo Bank, etc.). In Forex trading, the largest liquidity provider in the world is Deutsche Bank, also known as a leading retail and investment bank.

TOP 10 banks/financial institutions performing more than 77% of the total trading turnover on the Forex market according to the 2010 version:

Deutsche Bank
UBS
Barclays Capital
Citi
RBS
JP Morgan
HSBC
Credit Suisse
Goldman Sachs
Morgan Stanley

Liquidity providers are intermediaries, they include a large number of liquidity providers, they unite them into one whole, and ultimately issue them through software the best price for the broker, and he, in turn, for the trader (you).

It is easier for a broker to enter into an agreement with a liquidity provider than with each individual provider. I will give you several liquidity providers - Integral, Currenex, Sucden Financia, LMAX Exchange, etc.

Let's see who the suppliers and liquidity providers of famous Forex companies are. I took this information from the company websites.

The main supplier of Alfa-Forex liquidity is Alfa-Bank, which, in turn, works in the interbank market with over 30 leading American and European banks, including Goldman Sachs, J.P. Morgan Chase, Citibank, Wells Fargo, Deutsche Bank, Commerzbank, UBS, etc.

FOREX CLUB's partnership with First Derivatives plc (“FD”), a leading provider of software and consulting services, allows our Company's clients to gain global access to the largest pools of liquidity in the market, as well as institutional level pricing, execution and spreads in foreign exchange trading. currency.

Information about liquidity providers of Teletrade Group of Companies is not presented on the website. To the question "Who are your liquidity providers?" technical support answered me: " This information is not publicly available."
The editors of Forex Magnates Russia asked Evgeny Galikhin, head of the product management and methodology service of TeleTrade Group, “Who is your liquidity provider in this case, who covers clients’ transactions?”, the answer: “At the moment, we are not ready to disclose the liquidity provider, I can only say, that it's big English company"

On the Pro STP account, Forex4you's liquidity providers are FCStone and Sucden Financial, who provide the best quotes from major banks through prime brokers such as Deutsche Bank, Rabobank and JP Morgan.

Information about InstaForex liquidity providers is not presented on the website. To the question "Who are your liquidity providers?" technical support answered me: “Unfortunately, this information is internal and cannot be distributed.”

Information about RoboForex liquidity providers is not provided on the website. To the question "Who are your liquidity providers?" technical support answered me: “Several liquidity providers are used, they may differ for different instruments. Periodically, the main provider changes in order to optimize clients’ trading costs and improve the trading conditions provided. During the year, we changed about 5 providers, several are in the process of being connected now. In addition, , during periods of failure of the main provider, we receive liquidity from the backup provider. The pools of providers are also different. Therefore, there is simply no point in specifying the names of providers - this is too general a question."

Information about FIBO Group liquidity providers is not presented on the website. To the question "Who are your liquidity providers?" technical support answered me: “the largest banks”, and to the question “which ones?”, the answer was: “unfortunately, we do not provide this information”

To the question "Who are your liquidity providers?" NordFX technical support answered me: "ECN and Currinex."