Forex liquidity providers: everything you need to know

Forex liquidity is the ability to buy and sell currencies without creating a relevant impact on the exchange rate. That said, a market is considered to be liquid when assets can be bought and sold easily, with a significant amount of trading activity. Forex liquidity providers are very important as they make it easier for trading to remain active and profitable. Having greater liquidity makes prices competitive and keeps trading flowing.

This is why it is critical in the markets; studies have shown that economic crises are intrinsically associated with a lack of liquidity.

What are Forex liquidity providers?

Forex liquidity providers within the market are those who execute the purchase and sale of assets.

In the Forex market, these providers are usually financial institutions, banks, and large brokers.

A more liquid market is the ideal scenario as it considerably reduces the cost of trading. In addition, the difference between the bid and ask price (spreads) is minimized.

The Forex market itself is very liquid. However, trading is done under the balance held by Forex liquidity providers, which allows you to enter or exit a trade by your own decision.

What is the role of liquidity providers in operations?

In general, the procedure for trading currency pairs is as follows:

    1. The trader places his buy or sell orders with the broker.
    1. The broker passes the orders to the Forex liquidity providers.
    1. The latter executes the transaction or charges the spread fee or a commission based on the volume of the trade.

Providers act as counterparties in the transaction by executing the customer’s order on their trading desk, thus matching their customer’s purchase order with that of other customers or with another order from their inventory. With these actions, they act as market makers during the transaction.

Market liquidity

Market liquidity is determined by the number of sellers and buyers who are making transactions. As expected, the more participants there are in the market, the easier it will be to sell an asset or to buy it, as appropriate.

Why is liquidity important in trading?

When you decide to enter the world of trading, you have to carefully select the brokers with which you want to operate and the liquidity they offer. Because of this, it is important to know well the process of creating a Broker.

It is also important to know the trading platform you are going to trade with. In order to have the capital you want to start with, in a market with the appropriate liquidity, it is important to know this:

    • The more liquid the market to be entered, the lower the risk assumed since there will always be someone willing to buy and sell the assets,
    • Likewise, a more liquid market attracts more participants, promoting the opening of different operations, always according to our interests.

Similarly, in trading, liquidity directly affects the spread paid to the broker for providing this service. A liquid market means that it has many daily operations and therefore has many active traders. This will reduce the difference between the bid and ask price.

The importance of this element in trading, specifically in a currency market such as Forex, is vital and is one of the reasons why this market is so attractive. Hence the importance of having good Forex liquidity providers.

These brokers will promote greater price stability by taking a position in currency pairs that are offset by other liquidity providers.

It is important to take certain precautions when choosing a liquidity provider, as explained in this article.

Liquidity vs. counterparty

There are different brokers, those that use Forex liquidity providers, also called “stp” brokers, and those that work as counterparties, also called “market makers” brokers, each one has its pros and cons that must be analyzed when defining which one is the most convenient, let’s see:

Market Makers:

They have their trading desk, i.e., they create their market. For this reason, the operations that are carried out do not end up in the interbank market in a strict sense.

In this way, the brokers themselves facilitate the buying and selling within their environment, taking the trader’s counterparty position.


    • You can start with small amounts
    • They offer high levels of leverage.


    • These operations can generate conflicts of interest, since if you lose your operation, the lost amount benefits the broker 100%, because the money has not gone out to the interbank liquidity, but stays in the market created by the broker itself.

Brokers no dealing desk o STP

They do not have a trading desk, so they are intermediaries between traders and the different liquidity markets. Of which there are two types:

Brokers Straight Through Processing

Its job is to process securities prices and direct orders directly to the interbank market.


    • There is no conflict of interest.
    • Faster execution.
    • Direct access to the market.


    • They may charge fixed commissions in addition to the spread.


Testing different Forex liquidity providers and finding the one that works best when creating a broker, is a task that could take years if you don’t have enough experience. Fortunately, Smart Broker Solutions has more than 10 years of experience, so they have already done this testing for you, selecting the best liquidity at a competitive price and with the highest stability.

In this way, Smart broker solutions, number 1 in the UK and regulated by the FCA offer a connection with Forex liquidity providers, they offer various instruments such as FX, commodities, indexes, cryptocurrencies, and stocks worldwide. Contact them for personalized advice.

Rodrigo Insua

Avatar of Rodrigo Insua

Head of Marketing en Smartbrokersolutions. Coordination and management of online and offline marketing campaigns.

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