5 ways Liquidity Bridge can help brokers strengthen their risk management strategy
Author: Albina Zhdanova
If you are a broker, you are probably always looking for ways to be proactive with your business risks and to avoid them as much as possible. There is plenty of advice online as to how one can lower their risks. At the same time, it is common for brokers to overlook the solutions that are right in front of them. It is often found in the solution that they have already paid for.
Yes, we are talking about liquidity bridge software. Depending on the vendor, your liquidity bridge will include different functionalities, but there is a good chance that the product you have chosen has built-in protection that you might not be aware of. So today, we will share five features in the liquidity bridge that can help brokers reduce the likelihood of trouble, and we will use Trade Processor as an example.
Architecture of the solution
Every solution’s design has both advantages and trade-offs. And there is no denying that the way your software products are developed will affect your business. Trade Processor has a decentralised and distributed architecture. Decentralisation allows for quick order execution because there is no central hub where data needs to go first. Additionally, it reduces the chance of the final pricing changing due to the back and forth data transfer. Distributed architecture allows for a more secure and advanced installation. It is often more reliable and resilient to overloads thanks to intelligent load balancing. The added bonus of distributed architecture is that it is scalable and can grow with your business.
Order execution: variability and flexibility
Order execution is one of the key components of the liquidity bridge, and it has a significant effect on the broker’s operations. If done correctly, it can target several brokerage-associated risks at once.
- An intelligent order execution system will give brokers both flexibility and multiple options to provide the best pricing for their traders and do it in a custom manner.
- Liquidity Providers (LP) that are signed with the bridge are another essential factor in arranging the best pricing for the traders. While quality beats quantity when it comes to LPs, it is still good to have multiple providers to choose from.
- If the order is very large, there is a risk that it will not be executed, or the end pricing will be unacceptable to the trader. The way we address this risk at TFB is by implementing Continuous Execution. It works as follows: the large order is split into smaller ones. The smaller orders are then executed over a period of time to make sure the pricing is the most favourable.
- Some risks are easily mitigated by automation. For example, swap costs and exposure can turn into a financial risk and time loss if they are not controlled properly. The Volume Consolidation feature in Trade Processor automatically consolidates all open positions across all LPs at the end of each day. And just like that, brokers are free from running those daily manual tasks, and there is no risk of human error.
Integration with third-party solutions
A general rule is that you shouldn’t lock yourself in with providers that aren’t flexible and do not provide integration with third parties. Today, you might prefer to work with a single provider exclusively, but that might change down the line. If you decide to try new tools in the future but are heavily invested in software with no API to third-party integration, you might miss out on the latest technology and creative solutions.
Complementing solutions: an ecosystem of products
Like we just mentioned above, having the ability to integrate with any product on the market is important. However, such integrations might not work very well with the existing infrastructure. As a result, companies experience downtime, unstable performance as software products clash with each other, and sometimes more severe damage.
One way to minimise the risk is to work with providers that offer comprehensive solutions for brokerages. At TFB, we have created an ecosystem of products that include liquidity bridge, data management and reporting, PAMM money management, a separate White Label offer, and a selection of plugins and applications to cover the more unique needs of brokers.
Built-in reports for regulators and internal use
We don’t need to tell you how essential reports and compliance are. Every broker’s requirements will vary depending on their location and business model, but every brokerage needs reports. Apart from compliance with regulations, reports are a necessary tool for internal analysis, troubleshooting, strategy planning and reviews. Reporting can be costly and complicated, so we recommend looking for partners who already have reporting solutions to pair with the liquidity bridge.
Technology is not a cure-all when it comes to a broker’s risks. However, it is a good start. Utilising all of the software’s functionality will reduce the risks associated with compliance, service availability and speed, strategic and financial threats, and more. If you would like to find out more about the risks that might affect your brokerage and ways to minimise them, please email us at email@example.com, and one of our team will be happy to chat with you.
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