What is liquidity aggregation for a forex broker; key hub functions

How liquidity aggregation works

The market liquidity concept entails the presence of a buyer and seller for an asset at current prices without any delay. Liquidity aggregation is conducted through the operation of the software that transfers quotes and market order flows between liquidity providers and the trading platform.

Customer loyalty largely depends on the quality of liquidity provided, so it’s crucial to choose the optimal software package.

Main functions of hubs

A liquidity aggregation center (or a hub) is a program responsible for the basic liquidity provision functions, along with risk management, broker automation, and company scalability.

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Key elements of a liquidity aggregation hub

A hub provides the broker with an opportunity to connect to several liquidity providers, including CFDs and crypto assets.

1. Liquidity aggregation can be simple (best bid/best price) or advanced (volume-based).

In addition, a hub offers brokers additional functional benefits:

• Various markups for clients, incl. for various instruments;
• Minimum and maximum spread settings;
• Percentage markup;
• Several price channels;
• Ability to create multiple symbols for one asset;
• Schedule based settings.

2. Risk management

A hub provides trade execution flexibility through A-book and B-book models:

• It allows to store small volumes up to the set limit in the B-book, and after the limit is exceeded, the entire volume is sent through the A-book model to the liquidity provider (LP);
• The next important feature is setting up groups of traders with automatic redirection between A/B-books depending on trading style or changes in market volatility.

3. Problems with quotes

The liquidity control center provides quote alerts for each asset or symbol.

If the liquidity flow from the main LP stops, there is an automatic switch to additional providers.

4. Monitoring and reporting

This functionality is important for analysis and planning, as well as for regulating a broker’s activities.

Main functions:

• Information panels;
• View log;
• SQL database;
• Trading risk reports.

Hub evaluation criteria

Several large companies operate in the software installation and liquidity aggregation market. When choosing a supplier, pay attention to a hub’s key characteristics:

Aggregation

• How advanced aggregation works
• Automatic switching between LPs (fail-safe).

Risk management

• Routing transactions between A/B books.
• Symbols and securities.

Number of supported assets

• Support, monitoring, and reporting
• 24/7 technical support
• Reporting trading results.
• Reporting for regulatory authorities.
• Convenient customization and analytics interfaces.

Before making a choice, study the prices and conduct a comparative analysis of competitors. Use the trial period to evaluate service quality.