The role of liquidity bridges in maximising a broker’s success

Author: Marcus Ingram

Liquidity bridges are the glue between liquidity providers and trading platforms at the centre of a broker’s operations.

It’s the centrepiece for the most important element for your traders: execution.

When deciding what makes the most sense for your brokerage, there are a few options: Platform Gateway, Liquidity Provider’s Connectivity, or your own Liquidity Bridge.

All these options have their merits, but if any of the below cases seem familiar, it might be time to consider the latter more seriously.

You are using multiple platforms and/or liquidity providers

It is a huge convenience to manage everything from one place: analysing cross-platform data and exposure.

Especially as you scale, liquidity bridges allow you to optimise the core of your operations, namely:

• Pricing
• Risk management
• Client experience

Having a liquidity bridge allows you to take advantage of all the benefits of having a multi-LP structure. At TFB, we have 6 types of aggregation, ensuring the best pricing is used for each order. Combining this with managing margins and swaps across liquidity sources means the broker can save on costs while improving the end client’s experience.

A good liquidity bridging system is also core to a reliable and robust trading environment by setting backup feeding and execution. This creates an environment your traders will love: fast and reliable execution with the best pricing.

You are looking to improve your risk management

Advanced risk management and optimising your current book are some of the best ways to scale as a broker. There are several ways a liquidity bridge can help here.

It’s becoming increasingly important for brokers to manage risks proactively. Scheduling and profiles in Trade Processor make it easy to mitigate risks and extract maximum value from foreseeable market events. The most common example is monetary policy events, where TFB partners have the luxury of tweaking order routing and spreads to match the expected volatility.

Responding well and promptly to the risks we can't always anticipate is equally crucial. In Trade Processor, brokers can manage their flow both on the fly using the A/B risk tool or even completely automate this process with automated switches.

Flagging potential risks is equally important, so we created Brokerage Business Intelligence (BBI). BBI creates custom alerts and reports based on trading activity that could pose a risk. In the fast-paced environment of financial markets, being notified and able to react in real time is critical.

Book risk may be central, but it’s not the only consideration. The big picture is that leverage, swaps, server stability, and trader protection also play a role. That’s why it's essential to choose the right provider with experience and solutions covering all facets of effective risk management.

You want to become a market maker

Conventional wisdom, partly taken from the name, is that a liquidity bridge’s primary use is for Straight-Through Processing (STP) of trades. However, the Trade Processor is also a comprehensive solution for both prime and B-book brokers alike.

The execution engine allows liquidity providers to offer ultra-low latency execution and private aggregation pools tailored to each client. Those looking for an even more custom approach can create their own unique pairs and indices using the synthetics.

As the industry shifts and expands to new trading platforms, a liquidity bridge becomes increasingly important for working as a translator and a common portal for all of these platforms. Flexibility has become vital, and our FIX API platform makes it easy to create new sessions for clients who prefer margin engines and those using Web/MT5 coverage accounts. Liquidity providers can use the FIX API platform to offer their services to new clients, and they can use a private web cabinet for each taker connection.

Final thoughts

We can take inspiration from marginal gains and how the small details matter. Minor improvements, whether to execution speed, risk management, pricing, or any aspect of the trading experience, can make a big difference in the aggregate. Choosing the right bridge will compound these improvements, leading to overall operational improvements and happy clients.