A Forex Liquidity Aggregator is a brokerage or Fintech company that provides fx liquidity aggregation solutions wherein a trading platform is connected with different liquidity providers for seamless price quotes and order filling.
The intermediaries like Forex Brokers, Hedge Funds, and Institutions are actually the front shops that interact with the trader’s community and provide them with different trading solutions like self-trading accounts, forex signals, managed fund services like PAMM, MAM, Trade Copiers, etc.
They work for the forex traders and their business success solely depends on providing transparent, fast, and low-cost trading solutions.
OTC Forex Trading Market has grown by leaps and bounds in the past two decades. The Forex Trading community has got matured a lot and they understand the nitty-gritty of forex brokers’ business especially how their orders and matched and filled.
They don’t like the market maker brokers which are also called b Book brokers or dealing desk brokers because they trade against their clients.
Most learned and seasoned Forex Traders now want to only work with an A Book broker or ECN which fills their orders with the help of third-party market makers or liquidity providers. And they are ready to pay higher trading charges for this.
Forex Liquidity Aggregators fill the requirement.
Let’s understand who FX Aggregators are and how the Forex Liquidity Aggregation works.
Who is an FX Aggregator?
An FX Aggregator or Forex Aggregator is a business or institution that connects a forex broker or service provider with different liquidity providers and helps them get an uninterrupted and seamless feed of price quotes for forex pairs and different trading instruments.
This results in lower latency and order fill at the best prices and volumes.
FX Aggregation aka Forex Aggregation in its truest sense is the soul of information technology. It is the amalgamation of different APIs, tools, protocols, and algorithms that brings different sources of Liquidity together and establishes the seamless connection between the pool of liquidity and the counterparty.
The Liquidity providers keep sending the prices for assets and the trades can make trades based on the price quotes and their respective volumes.
Liquidity Aggregators
Alternatively, a Liquidity aggregator also represents the technology that allows participants to simultaneously obtain streamed prices from several liquidity providers/pools and get their order filled at the lowest cost and best possible prices which means a buyer gets the fills at the lowest possible price and a seller gets to sell at the highest possible price.
Software programs, algorithms with the help of different APIs & SDKs within a set of rules of standard FIX protocols allow customization of the price streams for both the liquidity provider and the receiving counterparty which happen to be the forex brokers, social trading (PAMM, MAM, Trade Copier, etc.) account providers, HFT Traders, large fund houses, etc.
It provides access to multiple liquidity venues and allows for a consolidated view of the market.
Types of Liquidity Aggregators
There are primarily 2 types of Liquidity Aggregators:
1. The Forex Broker Technology Providers or FINTECH Companies
You would already know that there are dedicated Forex Broker Technology Providers that solely work to cater to the brokerage businesses. Some of them have developed their own Liquidity Aggregator Solution aka FX Aggregator exclusively for forex brokerage businesses and other intermediaries that provide HTF trading services, PAMM, MAM, Trade Copiers solutions, etc.
Apart from them, there are FINTECH Companies that have come up with innovative FX Liquidity Aggregator Solutions that not only help forex brokers, but large fund houses, businesses, banks, and start-ups.
2. The intermediaries like Forex Brokers, Hedge Funds, Institutions
As explained above, the intermediaries like Forex Brokers, Hedge Funds, and Institutions are actually the front shops that interact with the trader’s community and provide them with different trading solutions like self-trading accounts, forex signals, managed fund services like PAMM, MAM, and Trade Copiers, etc.
They may get liquidity solutions from a brokerage technology provider.
But some of them want to have their own proprietary FX Aggregator that would work as per their custom requirements.
The development of a custom FX Aggregator takes significant investment and time but they do it anyway because they have funds and time at their hands.
The other thing is that they want to stand out and make create their own brand.
How does a Liquidity Aggregator work?
Let us give you a little technical as well as a functional explanation of how does a Forex Liquidity Aggregator Work?
- An FX Aggregator is a set of software programs, and algorithms, with the help of Liquidity APIs, broker APIs, SDKs, etc. are developed, designed, and interweaved together as per industry-accepted FIX protocols.
- An FX Aggregator works as a third party that establishes a two-way connection between a pool of different liquidity providers and counterparties like forex brokers.
- The connection requires different authorization and access for security.
- Once the connection is established, it actually forms an integrated network of different liquidity providers and forex brokers where the data, price quotes, orders, fills, and other details are shared real time at a super-fast speed.
- Clients or Forex Traders can see the real-time price quotes and when they place an order it’s sent to the FX Aggregators network and gets filled at the BEST price.
- An FX Aggregator automates the entire process automated and seamlessly.
Features & Benefits of FX Aggregators
Here are some lucrative features & benefits of FX Aggregators for forex brokers:
1. Direct Access to the best liquidity
A liquidity Aggregator is the best liquidity solution that gets forex brokers and their trader’s clients direct access to different liquidity venues. This gives them access o the best organic forex liquidity.
2. Transparency
An FX Aggregator brings great transparency for traders in terms of real-time prices, trade fills at the BEST price. Everyone in the Liquidity Aggregator network has access to fair prices.
3. Low-Cost Trading
Although trading through Liquidity Aggregator may have volume charges and other fees but when it comes to the spread and order fills at the worst price in the B Book method, the traders still get to trade at a low cost for they know how much they are paying for trading.
4. Far Better Risk Management
Since an FX Aggregator gets access to a tremendous amount of data from different liquidity venues, there is great flexibility to provide a risk assessment of every order request while ensuring compliance with pre-configured firm-specific trading constraints.
5. Centralized monitoring and control
A good Liquidity Aggregator has an admin panel or sort of dashboard that brings all the distributed data to a central location with great analytics and insights. Forex Brokers and Traders get far better monitoring and control over pricing and traders.
6. Faster Speed
Most FX Aggregators can execute a large volume of trades upwards of 20,000+ orders per second per single FIX connection.
7. Low latency
A good fx aggregator can ensure very low latencies for both tick-to-trade and trade-to-trade basis.
8. Distributed and Scalable
To increase the efficiency and performance of the forex trading strategies their components can be designed to run concurrently. Strategy components can also be deployed across multiple servers that can be collocated with various liquidity providers.
9. Very Specific & Decisive Back Testing
Backtesting is the key to forex trading success. It helps traders in checking and validate their trading strategies. FX Aggregator helps in very specific & decisive backtesting.
Strategy Backtesting and Scenario Testing framework allow the client to effectively evaluate performance and validate the behavior of trading strategies.
Forex liquidity Aggregator Pricing
Forex Liquidity Aggregator cost primarily has 4 different components;
1. Setup fee
Some FX Aggregators do charge a one-time set-up fee which may range between USD 1000 to USD 5000 between different providers.
2. Monthly Subscription Fee
FX Aggregators may charge a Monthly Subscription fee for their FX Aggregation solution which is usually in the range of USD 2000 per month.
3. Volume Fee
Some FX Aggregators charge a volume fee which is based on per lot traded volumes. If your volumes are significantly high, they may not only waive off setup fee and monthly subscription fee but can further offer discounts on the volume fee itself.
4. Value-Added Charges
FX Aggregators fetch huge data which can be worked with and can be used to generate analytics that can help brokers in different aspects. These are all the customs requirements and their charges vary from case to case.
Different providers of FX aggregator charges differently and there are no set price or cost. FX aggregator cost largely depends on the forex broker who wants to subscribe to it which depends on their customer base and the expected volume they would generate.
Some FX Liquidity Aggregators may charge flat setup and monthly charges irrespective of volumes and some may wave them off and just charge for traded volume.
Conclusion
Forex Liquidity Aggregator helps a forex broker run a true A Book brokerage that helps traders to operate with the best price quote and low trading costs.
But before subscribing to a Liquidity Aggregator, a forex broker must evaluate the current client base and see if they would generate enough volume to fit the requirement of the network, AND the most important thing would be they want to pay additional; charges which are respectively low.
Do contact different liquidity aggregators and check with them which liquidity venues they are connected with and the requirements for onboarding a forex broker.
Last but not the least, do get clarity on forex aggregator pricing.
Wish you grand success.