How to become a Liquidity Provider step by step

Author: Ivan Egorov

It’s common for Forex brokers that operate on the market for many years to consider becoming a Liquidity Provider (LP) at some point. It offers business differentiation, new experiences, and new profits. However, not every broker will pursue this idea, partly because there is no clarity in what it takes to become an LP.

Here is our quick step-by-step guide for any broker looking to become a Liquidity Provider:

1. Choose your business model

In the beginning, each broker must decide which way they want to go. There are 2 main routes for brokerages willing to become LPs. The first is to trade directly with clients as a market maker, and the second is to work as a middle man via an ECN or STP model.

As a Market Maker, you get more flexibility and control over the trading process. However, there is a possibility for conflict of interests with the Market Making model, as essentially you are profiting when the clients are not.

With the ECN/STP model, there is no conflict of interest, as all transactions go directly to the top or Tier 1 Liquidity Provider (usually large financial institutions such as banks). Here providers make a profit with volume-based commissions and spreads. Such a model typically means lower profit margins, but the risk is lower too.

2. Get a license

Depending on your company and capital size, you might want to register yourself offshore to enjoy lower capital requirements and less bureaucracy. It’s a good starting point, but we would recommend eventually to obtain a reputable license, such as CySec or FCA. Such licenses require a lot more hard work to get, e.g., you will most likely have to have a local office with employees, but it pays as your reputation and, therefore, profit potential will rise significantly. Many high profile clients will only work with companies that are registered within the EU.

3. Choose a technology provider

Brokers who are willing to turn into a Liquidity Provider will be able to multiply their profits, but with this opportunity comes an even larger responsibility. LPs manage many more clients, so there is few to none room for error.

The software that future LP chooses will have a direct impact on the business’ success. We recommend looking for an established technology partner with a proven success history, a partner with modern, fast, and reliable solutions. Execution speed is a key factor for minimal latency and rapid quotes flow. Make sure that all your software products come with 24/7 technical support as well.

Tools for Brokers provides comprehensive solutions that cover all technical needs of the brokerage company willing to become a liquidity provider. The Trade Processor bridging solution includes all the advanced functionality that any broker or Liquidity Provider needs. With the built-in FIX API Connector brokers can provide liquidity to market participants, such as other brokers and White Label clients. FIX API Margin Engine allows brokers to offer direct market access (DMA) to other brokers and hedge fund managers even without MT4/MT5 trading platform.

If you are seeking to become a liquidity provider, please don’t hesitate to contact us! Please email us at to get a consultation or to try any of our products.

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