What are Liquidity Providers?

Liquidity providers are the sources from which your broker receives the bid and asks to fill your order. All other things being equal, more and bigger are better.

The major players have multiple liquidity providers -- banks and large ECNs. The smaller players may just have one, two, or three relatively small providers. Information about a broker's liquidity providers is sometimes held very close to the vest. Some of them advertise, others will simply not tell you any meaningful specifics.

Tip: Do not be overly impressed by a broker who says she has 15 liquidity providers; they may all be very small.
One large provider may well be better than several small ones.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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