Until relatively recently, liquidity provision was assessed primarily on pricing, depth and access. However, brokers now operate in a more complex environment where they are increasingly looking to offer multi-asset access while factors such as market volatility and fragmented liquidity have made resilience and execution quality much more important.
It can appear that liquidity is becoming commoditised – especially because many providers are competing on very similar headline pricing – but when you look under the hood there are still very real differences between providers.
That is the view of Scope Prime CEO Daniel Lawrance, who refers to the importance of being able to support clients during volatile conditions.
“It also comes down to execution quality, consistency, market depth, uptime and risk management,” he says. “A tight spread is only valuable if it is executable, reliable and supported by the right infrastructure. In addition, brokers want a provider that understands their flow, business model and growth plans.”
Sophisticated evaluation
Pricing will always matter but brokers are becoming much more sophisticated in how they evaluate liquidity relationships. They are looking at execution performance, reporting, analytics, connectivity, onboarding speed, operational support, risk tools and the provider’s ability to act as a long-term partner.
“They want insight into their flow, support in managing exposure and confidence that their provider can support them as they grow,” says Lawrance. “This is especially true for brokers expanding into new regions or asset classes. They need infrastructure, guidance and partnership and this is where liquidity providers can create real value beyond spreads.”
“Brokers expanding into new regions or asset classes need infrastructure, guidance and partnership and this is where liquidity providers can create real value beyond spreads.”
Daniel Lawrance
According to Lawrance, demand for liquidity-as-a-service is growing as brokers look to reduce complexity.
“Managing separate relationships for liquidity, execution, risk, reporting, analytics and technology can be expensive, slow and operationally inefficient,” he explains. “An integrated environment where these components work together does not necessarily mean one provider builds every part of the stack but it does mean the broker wants a more seamless experience and fewer integration points.”
The competitive landscape for FX and CFD liquidity provision is changing both in terms of service providers and client sophistication, access to high quality analytic tooling and propensity to take a stake in the management of principal risk, says Finalto’s head of liquidity, Sam Horowitz.
“At the same time markets are as uncertain, capricious and as prone to bouts of volatility as I have seen in 30 years of pricing and managing client risk,” he adds. “The net result is that the choices people make when selecting a risk transfer partner matter more than ever.”
The heightened levels of market volatility and uncertainty that recent events have provoked have thrown into sharp focus the differences in business models and ability to support risk transfer in the wholesale markets. In this environment, what sets the systemically important providers apart is the ability to keep delivering product across a wide range of conditions to a consistent standard.
“For brokers, what tends to drive the importance, or otherwise, of considerations such as technology, analytics, operational support and/or strategic partnership is their approach to liquidity relationships in general.”
Sam Horowitz
“For brokers, what tends to drive the importance, or otherwise, of considerations such as technology, analytics, operational support and/or strategic partnership is their approach to liquidity relationships in general,” suggests Horowitz. “Firms with higher levels of LP aggregation, lower levels of LP engagement and less emphasis on proactive trading relationship management tend to be less sensitive to any changes in pricing, risk model, technology or stability. Whereas those firms that take a more thoughtful, curated approach to their liquidity partnerships, with smaller pools of aggregation and deeper relationships with their core LPs, tend to be more exposed to these factors.”
Intelligent approach
The competitive landscape is moving from access-led distribution to intelligence-led liquidity service, says Liam Smith, COO – UK at 26 Degrees Global Markets.
“Access still matters, but it is no longer enough,” he continues. “A broker can source a price feed from many places – the harder question to answer is whether the provider has the pricing stability, market access and counterparty strength to support that liquidity when conditions move quickly.”
The structural forces behind this shift are clear, adds Smith. “Brokers are managing more products, faster market conditions, tighter funding pressure and more demanding internal risk processes and at the retail broker level, aggressive margin and risk conditions are becoming a real issue. Competing on looser terms may win flow in calm markets but it can leave the broker exposed when positioning becomes one-way, hedge costs rise or liquidity thins.”
“At the access level, liquidity has become increasingly commoditised. A feed is easy to source and in parts of the market the same liquidity is recycled, repackaged and sold as differentiated,” says Smith.
“Brokers need to understand whether they are dealing with a genuine source of liquidity and risk capacity or with a provider sitting two or three layers away from the underlying market.”
“Competing on looser terms may win flow in calm markets but it can leave the broker exposed when positioning becomes one-way, hedge costs rise or liquidity thins.”
Liam Smith
“What is not commoditised is liquidity intelligence and the surrounding service. The real difference is whether a provider understands which streams are durable, which prices should be filtered out, which sources become unreliable under stress and how liquidity should be shaped around the client’s actual flow,” he adds. “Providing a price is not the same as providing an institutional liquidity service.”
According to Smith, the more sophisticated brokers assess liquidity in terms of actual execution outcomes. “They want to understand mark-outs, routing logic, hold times, quote stability and performance by market condition. They also need reporting that helps dealing, risk and management teams see what is happening early enough to act, not after the issue has already become obvious.”
“Operational support, technology resilience and redundancy matter more than many providers admit,” says Smith. “In practice, that means support around stream design, liquidity benchmarking, routing decisions, real-time trading and risk analytics, hedge support, escalation and stress performance.”
He refers to growing interest in more integrated liquidity models but cautions that the term needs to be treated carefully. “Brokers do not need another packaged label – they need an operating framework that helps them manage pricing, execution, hedge flow, exposure, margin, reporting and controls more effectively. The appeal is practical. As brokers add products and manage more complex flow, they want fewer disconnected processes and better visibility across the trading lifecycle. A stronger model can bring together liquidity access, execution analytics, risk monitoring, margin visibility, post-trade reporting and operational escalation.”
“But integration only works if it improves transparency,” says Smith. “If the broker cannot understand how liquidity is sourced, how pricing is controlled, how risk is monitored and where the economics sit, the model becomes another black box. The strongest demand is for providers that combine institutional market access with practical tools, so brokers can rely on the relationship with greater clarity and control.”
Fragmented markets
The FX and CFD markets are increasingly fragmented as the number of brokers entering the market continues to increase and it has become a race to zero on spreads, explains Sebastian Siivola, global head of liquidity for Edgewater Markets.
“We have seen many times in the institutional space that spreads widen in times of significant volatility – for example, when the US tariffs were announced, the gold basis widened massively in December 2024 and this caused the spot gold liquidity to be constrained due to a systematic reduction in market basis risk being run as a lot of market makers use the futures market as an important part of their hedging capacity,” he says.
Despite this, many B Book brokers maintained almost ‘fixed’ spreads to prevent losing client flow to competitors.
“The ability to provide multi-asset liquidity is becoming a must, as clients are becoming more inclined to not want to post margin to multiple brokers with strengths in different areas. If you can’t perform at a high level in precious metals, single-stock CFDs, indices, etc., then you will run the risk of losing clients or failing to attract new clients.”
Siivola notes that there are many factors that need to be taken into account when assessing the merits of liquidity providers but observes that strong liquidity management is fundamental to maintaining a competitive product.
“Without strong pricing, clients won’t trade and although more and more brokers are starting to offer B Book pricing, having a strong group of underlying liquidity providers you are able to interact with should always be a priority. Nobody wants to trade on wide spreads but there has to be a mutual understanding that not all liquidity is interchangeable. A small regional bank manually hedging corporate flow will show very different yield decay to an HFT engaging in latency arbitrage, so they should see very different pricing given the execution quality.”
“The ability to provide multi-asset liquidity is becoming a must, as clients are becoming more inclined to not want to post margin to multiple brokers with strengths in different areas.”
Sebastian Siivola
On the question of the extent to which brokers are evaluating liquidity providers on factors beyond pricing and spreads – such as technology, analytics, operational support and/or strategic partnership – Siivola notes that a liquidity provider must have some type of edge, whether that is execution speed, firm liquidity or a unique strength in strong liquidity in a frontier market where most clients may not have access.
“Many brokers continue to focus heavily on quoted spreads despite execution quality becoming a much more representative measure of total trading cost,” he adds. “Clients will want to partner with brokers that can consistently deliver high quality execution, robust infrastructure, insightful analytics and ongoing commercial support that enhances the broker’s profitability and client experience over the long term.”
Streamlined access
According to Smith, brokers increasingly want broader access through fewer relationships.
“A well-structured, multi-asset relationship can reduce fragmentation, simplify reporting, improve collateral usage and make it easier for a broker to scale across products,” he says. “But breadth is only valuable if the operating model is strong enough behind it.”
“The challenge is to make sure each product is supported by appropriate liquidity, risk controls, margin logic, reporting and escalation. Precious metals, for example, can create very different funding and hedge pressures from major FX. The opportunity is real, but it rewards discipline. The best providers will offer multi-asset access without weakening transparency, control or stress performance.”
Smith reckons the next generation of liquidity services will be built around execution intelligence, real-time analytics and operational resilience.
“Providers will need to deliver more than a feed – they will need to offer tailored streams, quote filtering, benchmark reporting, real-time liquidity and trading alerts, routing updates, risk analytics, margin visibility and clear escalation when conditions change.”
“The better-positioned providers will combine strong market access with technology resilience, counterparty strength, balance-sheet discipline and a practical understanding of broker-dealer operations,” he says. “They will be able to show clients not just where liquidity comes from but how it performs, how it is controlled and how it supports the broker’s own risk model.”
Risk discipline will be a commercial advantage, says Smith. “Sustainable liquidity has to reflect the flow, the volatility environment, the balance-sheet cost and the level of operational support required. The future does not belong to the firm with the most feeds. It belongs to the firm that helps clients understand which liquidity matters, which prices should not be used and how to manage risk in real time.”
He agrees that we are entering an era where liquidity providers compete less on spreads and more on the quality of the overall broker experience while adding that spreads will always remain part of the conversation.
“What is changing is that brokers are becoming better at measuring the real cost of liquidity,” says Smith. “They are looking beyond the screen spread and asking what the outcome looks like after skew, latency, quote stability, mark-outs, reporting, support and performance in volatile conditions are taken into account.”
“That changes the economics of liquidity provision. Providers cannot sustainably offer the tightest possible price in every condition if the underlying risk does not support it. The price has to reflect the flow, market conditions, balance-sheet cost, funding requirement, technology resilience and operational service being provided.”
This is not a weakness in the model, adds Smith. “It is what makes the relationship more durable. Counterparty strength, transparent economics, credible limits, technology redundancy and clear risk controls are better for both sides than aggressive headline terms that fail when volatility rises. In a market where access is easier to source, those are the qualities that separate durable liquidity relationships from generic price distribution.”
Data application
Progressive providers are applying data intelligently to improve decision-making and using more advanced analytics to understand flow patterns, identify execution trends, improve pricing models, optimise risk management and segment clients more effectively.
“Machine learning can help detect behavioural patterns, support more accurate forecasting and improve how liquidity is distributed across different client profiles,” observes Lawrance. “That said, human expertise remains essential. Markets are dynamic and risk cannot be managed purely by algorithms. The strongest approach combines data-driven tools with experienced risk management, market knowledge and strong governance.” Providers that support multi-asset and multi-instrument become more strategic to their clients and help them diversify their offering. They also allows brokers to respond to changing client demand without having to build separate infrastructure for every market.
“However, this also introduces complexity,” cautions Lawrance. “Different asset classes have different liquidity profiles, trading hours, volatility patterns, margin requirements and risk characteristics so providers require robust technology, strong risk frameworks and deep operational expertise to support this shift properly.”
He reckons the next generation of liquidity services will be broader, more integrated and more intelligence-led.
“Scale will matter but flexibility will matter too – brokers are not all the same so providers that can tailor their offering while maintaining institutional standards will be best positioned. The long-term winners will be those that help clients solve business problems, not just trading problems.”
Spreads will always be part of the conversation but they are no longer the whole conversation according to Lawrance, who emphasises the importance of the broker experience.
“For liquidity providers, this changes the economics of the business,” he says. “Competing on value, infrastructure and partnership creates a more durable relationship. The future of liquidity provision will therefore be less transactional and more strategic.”
Strengthening relationships
The key challenge highly automated businesses face is how to preserve the best elements of discretionary relationship management and service provision as complexity ramps up and decisions are increasingly data driven, says Horowitz.
“Any broker client lodging collateral with us will potentially have an expectation of full service, multi-asset class provision so we tend to service a very long tail of instruments outside of those with the bulk of the traded volumes,” he says. “The challenge there is resilience and consistency of product offering.”
Horowitz refers to analytics consulting – assisting clients with challenges in risk management and price distribution – as a key growth area for bulge bracket broker firms and in the longer term envisages new products emerging in areas such as true frontier markets, prediction markets and less commoditised products, albeit at a more modest pace of adoption.
He notes that “spread quality will always be the shop window and the first benchmark by which any liquidity provider is judged, as it most closely correlates with a client’s bottom line. However, time and time again we find that while spread may be what attracts a client, the ability to be there and deliver when risk management is hardest is what defines our relationships.”
The level of investment into in-house technology solutions has risen dramatically and it is now almost a given that a broker will utilise AI in some capacity within their infrastructure, suggests Siivola.
“We have seen significant advancements in liquidity providers having the ability to provide different types of pricing particularly for more ‘toxic’ flow,” he says. “Whereas in the past you may have been given a tier 1 / tier 2 feed, now more liquidity providers have the sophistication and willingness to provide risk reducing skew feeds to clients where market impact isn’t necessarily as much of a worry.”
These types of feeds are particularly effective for brokers pricing regional banks trading in their home currencies where any flow they see will simply offset existing inventory.
According to Siivola, it should be understood that AI is not yet perfect and as changes in execution style can happen in real-time, this needs to be communicated to underlying clients to avoid future headaches.
“In a perfect world both the broker and client have advanced analytic tools and are both able to flag to each other when there is a deterioration in execution quality,” he says. “Conversely, if the flow shows to have positive mark-outs over a longer period of time and spreads aren’t as tight as they possibly should be, the broker should adjust accordingly.”
Institutional focus
The next generation of broker liquidity providers with the best chances of long-term sustainability, reckons Siivola, are those that already have roots in the institutional space and have built up credit and symbiotic relationships with their underlying liquidity providers.
“Those that have the capability to handle both A Book and B Book flow, while keeping execution consistent for clients based on the quality of their flow, can continue to provide a great service to their clients,” he says.
“Brokers who are able to provide transparency into what goes on throughout the entire trade lifecycle and have deep institutional knowledge will have a much higher chance of remaining on top and growing than those who lack proper risk management and operational support. Brokers are increasingly becoming infrastructure partners rather than simply execution venues.”
When asked whether we are entering an era where liquidity providers compete less on spreads and more on the quality of the overall broker experience, Siivola agrees that spreads will remain an important focus but believes that over time, as clients become better educated on the overall FX ecosystem, a liquidity provider showing tight spreads in a non-trading capacity can look completely different once price stability, liquidity depth, fill rates and market impact are taken into account. “Relationships are also becoming more strategic,” he explains.
“If a broker can provide a high quality payment gateway, risk management tools, a wide array of products and high-level market research, the commercial relationship becomes much stickier. Once a broker integrates a liquidity provider’s pricing, APIs, analytics, risk tools and operational processes into its business, switching providers becomes significantly more costly than simply comparing headline spreads.”
