Liquidity bridge vs. Spreads

A spread is, roughly speaking, another kind of commission for the broker, as it is the difference between the bid and ask prices. So the smaller the spread, the better it is for the trader. The spreads are typically large when markets are not active and volumes are low. It is essentially an inevitable part of the process, but there are things brokers can do to reduce its impact on their performance.

To help brokers minimise their potential losses, we designed and continue to improve several tools within the Trade Processor (TP) liquidity bridge. So what can a broker do to reduce their spreads?

1. Find a good LP

Having a reliable liquidity provider is vital. Even though it is not specifically a feature of any bridging solution, the odds of finding a trustworthy LP are directly affected by your bridge provider’s policy. While some brokers find a provider with high-quality liquidity and small spreads, it is good to have a variety of LPs to choose from.

2. Aggregate via multiple LPs

Another way to avoid large spreads and provide your traders with the best pricing is to aggregate the orders via several liquidity providers. Most of the modern bridge solutions offer best price execution aggregation. At TFB, we provide advanced aggregation via six different aggregation methods which enable brokers to provide best pricing to traders and simultaneously minimise the exposure and save the cost of swaps.

3. Configure the thresholds

It is also possible to control spreads by configuring the minimum and maximum thresholds in the feeding settings of Trade Processor. The system adjusts the spreads dynamically and keeps them within predefined limits. It allows brokers to provide their customers with the best trading experience.

In the Trade Processor, brokers can see the spreads statistics in the LP Performance tab. With the recent TP update, we added the depth of market spread update history. It will help brokers run internal analytics efficiently and compare the liquidity from all of their providers.

We would love to hear your thoughts! How do you minimise spreads in your brokerage? Please email us at sales@t4b.com to share your thoughts or for anything else.