What is liquidity aggregation?

Liquidity aggregation is one of the core elements of the financial trading workflow. 

It is the process of combining price and volume feeds from multiple liquidity sources, such as banks, ECNs, market makers, internal books, etc., into a single, consolidated order book or smart routing system that delivers the best pricing, deep market depth, more efficient execution, and reduces slippage. 

Today, we’re going to dive deep into the concept of liquidity aggregation, its benefits, key principles, and why many successful brokers utilise it.

What are the benefits of aggregated liquidity?

The core goal of liquidity aggregation is to provide the best pricing possible and increase market efficiency, unlocking faster and more reliable execution across multiple financial instruments. 

Here are the ways liquidity aggregation ensures top-notch execution: 

• Increased market coverage: Combining multiple sources expands the total wealth of assets available for trading by covering diverse instruments and markets more efficiently.
• Higher speed of order execution: One thing about aggregated liquidity that not everyone realises is that access to multiple liquidity pools makes trade processing more efficient. This allows for faster transactions, which is critical in volatile markets where every millisecond matters. 
• Execution at best market prices: Smart order routing means orders are filled at the best (a.k.a. most competitive) price possible, reducing slippage and spreads. 

Combined, these benefits create an elevated trading experience for brokers and traders, helping smooth operations, reduce costs, and keep the endeavour profitable for everyone. 

What are the ways to aggregate liquidity in the market?

If you want to establish efficient liquidity aggregation, there are several routes you can take.

#1 Technology-level aggregation

In this scenario, we use an aggregation engine (such as Trade Processor by TFB) to connect to several LPs via FIX or proprietary APIs. Next, we consolidate quotes into one order book and execute the orders according to the pre-configured rules.

Execution model examples: best pricing, volume-weighted, proportional, tiered groups of liquidity providers, sweep the book.

#2 ECN or multilateral trading facility (MTF) aggregation 

This liquidity aggregation financial aggregation method is used in institutional or interbank FX, crypto exchanges, and equities. The ECN itself aggregates quotes from multiple participants on the market, and clients then access a central limit order book (CLOB). This achieves true market depth, tight spreads, and anonymous execution. 

Examples: LMAX, EBS, Integral. 

#3 Internal liquidity pool or internalisation

In this scenario, a broker or a market maker matches client orders internally before they route them externally. This helps reduce exposure to external liquidity providers and improve spreads. This method allows for faster execution and often reduced costs; however, there is a risk of conflict of interest. 

#4 Prime brokerages

Prime or prime-of-prime aggregation is typically utilised by brokers who can’t connect directly to Tier-1 liquidity providers. Here, prime brokers provide aggregated liquidity to brokers based on their relationships, and these brokers access pooled liquidity through a line of credit. Such a setup is considered simpler (as there is only one counterparty) and cuts down on operational risks.

#5 Smart order routing 

Smart order routing is used across many asset classes, such as Forex and crypto, and it’s often combined with internal aggregation. This achieves decent execution quality and allows for customisable routing logic. 

What are the principles of liquidity aggregation?

At its core, liquidity aggregation relies on a few fundamental principles that make the entire system efficient, transparent, and resilient.

1. Multiple liquidity providers: Aggregation begins with access to a diverse pool of liquidity providers on the market, including Tier-1 banks, non-banks, ECNs, and market makers. Working with multiple sources helps reduce dependency on a single provider, creating deeper market depth, smoother execution, and more stable pricing.
2. Real-time data processing: Collection and normalisation of pricing data over an extended period ensures that the consolidated order book reflects the most recent market conditions. 
3. Low-latency infrastructure: Brokers must minimise delays in data transmission and order routing to ensure timely trade execution and maintain competitive spreads in the current brutal market.

Why do brokers use liquidity aggregation?

There are several important reasons for brokers to choose liquidity aggregators:

• Improve pricing through consolidated spreads. 
• Enhance execution speed and reliability. 
• Simplify tech integration by consolidating everything to one platform.
• Gain access to different liquidity sources.

Collectively, it enables brokers to:

• Improve client satisfaction 
• Avoid single points of failure
• Attract more traders 
• Streamline liquidity management

Final thoughts on liquidity aggregation

The fragmented financial markets of today call for liquidity aggregation. Combining liquidity from multiple providers into a single pool helps brokers secure better pricing, faster execution, and access to a broader market. Choosing the right liquidity aggregator directly influences the brokerage’s performance and the level of service they provide to clients, so it’s not a decision that should be rushed.