Maximising the potential of your liquidity bridge

Author: Marcus Ingram

The liquidity bridging system is the heart and soul of retail brokerages, hedge funds, and prop trading companies.

A modern liquidity bridging solution is versatile and goes far beyond the standard routing and execution, basic reporting, and Maker/Taker connections.

Today, we’ll discuss the lesser-known but beneficial features of the Trade Processor liquidity bridge, which help improve operational efficiency, manage risks, and boost the client experience.

#1 Utilising data and analytics

The first and most crucial step in optimising your liquidity bridging system is using its built-in data analytics and reporting capabilities.

Brokerage Business Intelligence (BBI)

The newly reintroduced BBI functionality enables clients to compile custom reports and alerts based on trading patterns they want to identify. It also helps group traders based on their own criteria, such as their trading patterns.

TFB client case: One of the TFB clients used BBI to identify high-frequency traders by tracking how often they opened and closed positions and the percentage of trades made within those timeframes. The client worked with two liquidity providers (LPs). One of them was okay with a higher frequency, while the other was not, so the broker was able to direct trades from this high-frequency trader to a particular LP and maintain good relationships with both of them as well as with the trader.

Custom reports

Standard reports, such as the Execution and Transaction reports, are widely used, but they do not cover all the data.

Client case: The liquidity bridge stores information about each system component, such as how long it took to execute. When a TFB client wants to evaluate which part of the execution is causing delays, they can review report data on all components, identify which one is causing the issue, fix it, and improve the flow.

If you’re looking for data about operational workflow, it’s very likely that it’s already in the liquidity bridge, which means you can easily track and work with it.

Tip: The Trade Processor creates a market-depth snapshot for each order. Because it tracks every aspect of how each order was executed, it can be used to resolve disputes with traders.

Liquidity Provider Performance

With Trade Processor, you get an in-depth look into the execution process, which enables you to assess the liquidity providers you’re working with. You can review things like average speed and execution time to evaluate whether the LP is giving you the best price and choose whether to proceed with them for order execution. Doing this regularly secures the best pricing for traders and better operational efficiency for the brokerage.

#2 Managing risks

There are many ways to tackle expected and unexpected volatility. One available to Trade Processor clients is to create different profiles, for example, high-risk and high-volatility profiles and set up different execution rules for a specific timeframe.

If you prioritise low risk, you can schedule a specific trade execution route around a particular timeframe, such as two hours before and after the news is announced.

Tip: It’s also possible to adjust markups for the market risks through profiles.

While profiles are excellent for expected vulnerabilities, they also effectively deal with unexpected ones. If you have those profiles set up, and something significant suddenly happens, you can switch the system with a few clicks and save the day.

#3 Improving the client experience

The FIX API platform is commonly used for FX trading sessions and to provide liquidity to institutional clients.

Another way the dashboard can be used is to provide individual or institutional traders with a terminal to log in to see all the data on their trading operations, review it, and even trade right through the dashboard.

TFB clients providing it to their traders report higher user satisfaction and higher trading volumes.

What else can you do to improve the trader experience with the help of the Trade Processor?

There are many smaller tools and instruments that make a big difference to your traders and help you win their loyalty.

• Backups. With Trade Processor, you can set up a backup liquidity provider (LP). If the primary liquidity provider goes down for any reason, the system will automatically switch to the backup LP and ensure traders have an uninterrupted trading experience with no downtime.
• Best pricing. The Trade Processor identifies off quotes and blocks them from entering the trading platform. Brokers can also compare quotes against the average for the past 12 hours and block them if something does not seem right. 
• Synthetic indices and symbols can be generated in the liquidity bridge, allowing clients to expand their product offerings and stand out from the competition. Many brokerages add synthetic instruments to their local currencies, which only have 1-2 standard pairs, helping them expand their trading potential and boost volumes.
• Aggregation makes a big difference in trading. Trade Processor offers  six types of aggregation, all centered around providing the best pricing. Some of them do more, for instance, by minimising brokers' net positions and helping them avoid having opposite positions open at multiple LPs simultaneously.