Liquidity & Aggregation

Liquidity represents the ability to buy or sell an asset quickly without significantly moving its price. High liquidity means tight spreads, deep order books, and fast fills. Low liquidity means wider spreads, shallow depth, and higher slippage. In the FX market, liquidity comes from banks (Tier-1 like JP Morgan, Citi), non-bank market makers (Citadel Securities, XTX Markets), and ECNs that pool participant orders.

Aggregation technology collects streaming quotes from multiple LPs, normalizes them into a unified format, and constructs a composite order book. The best bid across all LPs becomes the composite bid; the best ask becomes the composite ask. This composite spread is almost always tighter than any single LP's spread because LPs compete with each other. The aggregation engine also monitors LP quality and can dynamically adjust weights.

Direct LP connections route all orders to a single provider. Composite liquidity blends quotes from many providers into a single stream. The tradeoff: direct LP is simpler and may have lower latency, but composite provides competition, redundancy, and tighter pricing. For most retail and institutional clients, composite liquidity delivers better outcomes because it eliminates single-provider dependency.

The ideal LP pool includes diverse provider types: Tier-1 banks provide deep, stable liquidity with wide instrument coverage. Non-bank market makers offer aggressive pricing with tight spreads. ECNs provide anonymous, order-driven liquidity. Regional banks may offer strong pricing on specific currency pairs. Diversity ensures that no single LP failure degrades the overall experience, and competition between provider types produces the best client outcomes.

Liquidity quality is measured by: effective spread (the actual cost of a round-trip trade), depth (volume available at quoted prices), consistency (pricing stability during volatile conditions), and rejection rate (how often LPs decline to fill). A broker that publishes these metrics — not just average spread — gives traders the information needed to evaluate whether the liquidity pool genuinely serves their interests.