How liquidity aggregation works
Liquidity aggregation implies the presence of counter orders to buy or sell the underlying asset at the current market price.
An aggregation center (a.k.a hub) is a software product that transfers the quote flow from the liquidity provider to the client’s terminal (A-book model). If a broker uses the B-book model, liquidity is provided by the broker itself.
Aggregation scheme:
- Quotes offered by the LP are placed in the market depth.
- If a trader opens a limit order, the bridge selects a counter order of a suitable volume and executes it.
- If a trader opens a market order, the bridge determines the provider that offers the best price, then sends a request to confirm the trade and fills the order.
The quality of a broker’s work is determined by the extent to which the liquidity provided to the client corresponds to his trading volume.
What functions do hubs perform?
A hub or liquidity aggregation center performs the basic functions of providing liquidity to clients, as well as managing risks and automating the work of a forex broker.
Here are just some of the advanced functions performed by hubs:
Routing
- Flexible adjustment of customer transaction distribution between A/B-books depending on the percentage or the set volume;
- Setting up groups and rules for redirecting transactions between A/B models depending on market conditions.
Issues with quotes
A hub provides information on quotes for each asset and automatically switches to another supplier if they are not available.
Monitoring and reporting:
- Information panels;
- Viewing the log;
- SQL database;
- Trading risk reports.
Crypto liquidity aggregation – advantages for forex brokers
Due to the high volatility in 2020-22, the crypto market has gained great popularity among traders. That’s why forex brokers are actively promoting crypto asset trading services and competing with exchanges.
A hub can work as a crypto liquidity aggregator, while the broker receives significant benefits:
- Attracts new clients with available margin requirements;
- Increased trade turnover;
- Increased customer loyalty and company scalability.
How to choose a provider
In order for clients to have access to 100% liquidity, it is important to correctly assess hub quality:
- How many crypto exchanges the aggregator supports;
- What advanced aggregation features are available;
- Availability of a trial period for software evaluation.
