Tier-1 Liquidity Providers are the largest investment banks and financial institutions like Deutsche Bank, UBS, Barclays Capital, Citi Bank, RBS, JP Morgan, etc. of the world that are actually the market maker for the forex market.
They offer bids and quote ask prices for the currency pairs and take the opposite side of the trades irrespective of the possibility that they may actually lose money if the price moves against their position.
And even the beginners in the forex trading market know that one makes money trading currency pairs when the price moves. You make money when the price of currency pair moves in your favorable direction. You lose when it moves against you o even if it stays at the same price levels where you had entered into the trade because of trading charges like commission, brokerage, slippage, spread and swap charges, etc.
Forex Market is all about money and large banks are the custodian of money the world over. Not just the forex markets and financial institutions they support governments as well.
Every market like stock, bonds, commodities, etc has liquidity providers. When it comes to forex trading, Deutsche Bank is the largest liquidity provider also known as the leading or key retail and investment bank.
Who do tier-1 liquidity providers provide services?
The Tier-1 Liquidity Providers provide LP solutions to the Tier-2 Liquidity Providers, Prime Banks, large forex brokers, etc. The volume requirements are so high that mid-level and small retail forex brokers and traders can’t even fit the criteria.
They take the liquidity from Tier-2 Liquidity providers.
How do tier-1 liquidity providers make money?
Spread on price quotes are the primary source of income for Tier-1 Liquidity Providers but they offer the lowest spread; at times it’s so low that they are literally negligible.
How can they offer such a low spread? Well, they operate on large volumes. Billion Dollars worth of trades moves through them just like that!
Just imagine even if they offer the slimmest spread, Tier-1 Liquidity Providers still makes millions in a month.
Yeah, you are right in thinking, how about the trades where they lose because they went against them?
Remember, they are into investment banking and have deep pockets. They hire the best financial talents and give them the best technology and research resources. They can predict with greater probability whether a trade is going to make their money.
If they are into the right trade with a good probability of winning, good, else they either take a counter position or hedge their positions with some other trade.
Whats the real deal with Tier-1 LPs?
Well you might have already guessed it but let’s share with you anyways; it’s all about the volume. It’s so huge that even a fraction of earning will the expenses of highly qualified professionals, technology, and hedging, a fraction of a billion is still million.
And when you do it round the clock, for days, weeks, and months; you make billions at the end of the year.
Bigger the volume happier they are!
Top TIER-1 LIQUIDITY PROVIDERS
Here is the list of the world top TIER-1 LIQUIDITY PROVIDERS:
- Deutsche Bank
- UBS
- Barclays Capital
- Citi Bank
- RBS
- JP Morgan
- HSBC
- Credit Suisse
- Goldman Sachs
- Morgan Stanley
Closing words
Tier-1 Liquidity Providers are the real market markers of the forex market. They ensure that the forex market stays liquid and active round the clock throughout the week and even on weekends they keep working on settlements etc.
No wonder being market makers, they understand the forex market in and out.
No matter what, they make the money at the end of the day.
But it’s because of them retails and commercial banks, institutional and retail forex brokers, tier-2 liquidity providers, and retail traders are able to trade freely and make money.
This is it for now!