Liquidity Bridge Basics
Those new to the forex industry are often bombarded with a variety of terms that can appear intimidating at first glance: PSP, liquidity, pips, hedging, FIFO, swaps, cTrader and MT4 to name a few. Unlike other concepts, a bridge appears simple enough in name. The functionality, however, can be quite advanced for those working with it for the first time. To help clear up some of the confusion, we’ll cover the basics in today’s article.
What is a Bridge?
To start, a simple definition of a liquidity bridge (or simply “bridge”) is a piece of a software that acts as an intermediary between a trading platform and a source of pricing/liquidity. This is achieved by using the API of MT4, or other software provider and connecting it to the API of the pricing/liquidity provider. Although bridges usually are meant to deliver liquidity, they can also be used just to provide a price feed. In this regard, it’s a simple enough concept that doesn’t need to be made overcomplicated. Bridges became an industry standard after brokers working with MT4 software required a simple way to send trades out of the system; prior to this, the technology simply didn’t exist.
Now that bridges are a staple of the business, it’s important for those new to the industry to understand the important role they play.
Flexibility with Markups
A major feature that bridges offer is the ability to set pricing mark ups. This is a powerful resource that immediately expands the possibilities that brokers have available to themselves when making a product offering. For example, a bridge makes it very easy to offer one group of clients fixed spreads while providing variable spreads to a different client base within the same trading ecosystem. In addition, further customization such as a commission only VIP groups can then be made depending on the broker’s specific tastes.
The ability to aggregate pricing from multiple sources of liquidity is another advantage that bridges offer to brokers. Aggregation simply involves taking prices from one or more liquidity sources and creating a single feed from it. The reason this is advantageous is that it creates competition among liquidity providers. If one provider offers too high of a spread, their pricing simply won’t appear in the broker’s feed. The mechanism behind this is known as BBO, which stands for Best Bid/Best Offer. BBO simply means the price feed consists of the most competitive offer from all providers working with the broker. Because multiple providers are competing to offer the best pricing possible to the broker, it results in a better trading experience for the end user.
Risk Management Tools
Finally, bridges offer a variety of tools that can help to complement a broker’s risk management. The ability to route orders, adjust exposure between different books, and reporting capabilities are just a few reasons risk teams prefer working with bridge providers. With the help of bridge technology they can better streamline their work and ultimately make the business more profitable.
Atomiq Consulting offers IT consultation services to a global client base of brokers. Our team of experienced technicians has extensive experience with the major bridge providers, making us an excellent resource for discussions related to bridges. We are happy to help your broker decide not only which MT4 bridge providers but what liquidity provider best fits your specific profile. Don’t hesitate to contact us with any questions.
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