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Gold-i's Liquidity Management FAQ's

  • What is a Liquidity Provider (LP)?

A Liquidity Provider (LP) is an institution or financial entity that acts as a counterparty to another financial entity, such as a retail FX broker or hedge fund. A Liquidity Provider acts as a market maker, both buying and selling a given asset, creating a market to be able to trade against.

 

  • Why would I use a Liquidity Provider?

A Liquidity Provider acts as a counterparty to all the risk/exposure the financial entity faces, for example, from their end clients. Under certain jurisdictions, or with certain types of licence, the broker cannot carry any risk/exposure themselves and therefore operates by offsetting this risk to a Liquidity Provider.

In some situations, although the broker can carry their risk themselves, they may choose not to. For example, they may determine they are carrying too much risk and therefore choose to offset this risk to a Liquidity Provider.

 

  • What is a liquidity bridge and how does it work?

A Liquidity Bridge is a low-latency piece of software that acts as an intermediary between a trading platform and a source of pricing/liquidity. It gives brokers full control to set up a direct connection from a trading platform, such as MetaTrader 4 or MetaTrader 5 to Liquidity Providers.

A Liquidity Bridge takes only a few milliseconds to process a client order, providing a fast and efficient automated “Straight Through Process” for the financial entity.

With a Liquidity Bridge, a broker can automatically cover all broker risks with LPs in real-time, easily managing A-Book and B-Book flow with ‘Cover Trades’ and create a variety of spread profiles with custom mark-up functionality.

 

  • What is slippage?

Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. It can happen at any time but is most common during periods of higher volatility. Slippage can also occur due to low available liquidity, when a large order is executed but there isn't enough volume at the chosen price to execute the trade at the requested bid/ask spread.

 

  • What is FIX?

The Financial Information Exchange (FIX) is an industry-standard messaging protocol that consists of a set of clearly defined rules of engagement. The FIX messaging protocol is compatible with a vast network of brokerages, trading platforms, and nearly all Liquidity Providers.

 

  • What is an API?

An Application Programming Interface (API) is a set of pre-defined rules that allows two software applications to communicate with each other.

APIs are used in all software applications to enable them to communicate with other applications, using standards. There are many types of APIs, offered in many types of programming languages (like Python, Java, C#, C, etc), and many standards, making API integration a very complex process.

The most common API used in the FX industry is the FIX (Financial Information Exchange) API. This API is a message-based protocol, and therefore can be used with any programming language and any application.

 

  • How does Gold-i’s software use FIX API’s?

The Gold-i Liquidity Bridge for MetaTrader 4 (MT4) and MetaTrader 5 (MT5) and Gold-i Matrix make use of the FIX API protocol and various platform APIs to connect Financial Entities with Liquidity Providers. The FIX API is very fast and allows very low-latency connections between all parties.

 

  • What is order execution and how does it work?

Order execution is the process of accepting and completing a buy or sell order in the market on behalf of a client. It may be carried out manually or electronically, subject to the limits or conditions placed on the order by the account holder. In the FX market nearly all order execution is automatic.

 

  • What is the difference between the MT4 Bridge & MT5 Gateway plugin vs Matrix?

The award-winning Gold-i Liquidity Bridge for MT4 and MT5 gives you full control to set up direct connections from your MT4 or MT5 server to one of over 70 Liquidity Providers (LPs) in multiple asset classes.

The Gold-i Matrix is a multi-asset liquidity management platform that allows you to connect your trading platform(s) to multiple LPs. The multi-asset platform enables you to aggregate multiple pools of liquidity, mark up the spreads and stream your own liquidity to a trading platform or other financial entity, with an easy and efficient graphical system configuration.

If you are a retail broker who wants a simple and reliable connection to a liquidity provider then the Gold-i Liquidity Bridge is a great option. However, Gold-i’s Matrix is recommended for brokers that want to offer multiple asset classes or have a more complex setup requiring the ability to manage multiple liquidity pools across many Liquidity Providers.

 

  • What is liquidity aggregation and how does it achieve best price policy?

Liquidity aggregation refers to a technology platform that allows participants to simultaneously obtain streamed prices from a pool of several Liquidity Providers. Routing algorithms customise the price streams, providing the liquidity consumer with the ability to obtain a Best Bid or Offer price, which in turn, can be passed to their end client. Aggregating multiple Liquidity Providers can offer tighter pricing and deeper liquidity, but recycled liquidity can be a problem if all the liquidity comes from the same ultimate LPs.

 

  • How does Gold-i’s Matrix technology work?

Whether a broker connects to one or many LP’s, Gold-i’s Matrix technology allows them to manage and aggregate their feeds, including FX, CFD’s, Commodities and Crypto, through either an MT4 Bridge, MT5 Gateway or direct FIX API connection. Graphically, this platform has the most comprehensive administration and monitoring suite, making it simple to set up and use on a day-to-day basis.

Primary and secondary liquidity feeds can be configured for all instruments, pools and streams enabling frictionless Fail-over and Fail-back. Multiple configurations may be created and loaded as required, encompassing parameters such as: Best-bid or offer, Sweep-the-book and  Primary/Secondary configuration of specific LPs.

Using the Gold-i Matrix Monitor you can view incoming pools for specific symbols to analyse market depth and the outgoing pricing stream.

 

  • What does Gold-i’s Matrix Insight Dashboard show?

This insight dashboard helps brokers visualise historic trading statistics and offers an easy-to-view breakdown of order routing by LP and Symbol, with full report metrics available on every trade. System Health gives a broker an overview of the connection status of all components, LP’s and Pools.

 

To learn more about our liquidity management solutions click here

For a free demonstration or to arrange a trial, please contact sales@gold-i.com 

 

About the author

Gold-i

Gold-i

Gold-i is a global market leader in trading technology, helping hundreds of multi-asset brokers to transform their trading operations with robust liquidity management solutions, award-winning MetaTrader Plug-ins, business intelligence tools and all with the best support in the industry. Gold-i has won over 20 trade awards in recognition of its innovative products, commercial success and future potential, including a prestigious Queen’s Award for Enterprise 2014. Has been recognised as one of the most influential Fintechs in 2018 and 2019.