As of October 2022, the overall number of issued digital assets is rapidly moving toward the 22,000 mark. Despite the tensions in global markets and overall market instability, traders and investors continue to find new digital assets to invest in. However, most of them face difficulties related to which cryptocurrencies are worth investing in at the moment. This is where the liquidity factor comes in, as liquidity is extremely important to every investor and the market as a whole.
So, prior to deciding whether to engage in the cryptocurrency markets, those who are interested must master the principles of cryptocurrencies and cryptocurrency liquidity. One of the fundamental aspects you should properly examine when opening a brokerage is what liquidity your company will receive.
In this article, you will find out what a crypto liquidity provider is and why you need one for your crypto business. Then we will discuss what aspects you should consider when choosing the best crypto liquidity provider as well as where to find crypto liquidity providers. At the end of this article, we will describe the top-quality crypto exchange liquidity provider.
First things first, it is important to briefly describe crypto liquidity.
When we talk about the financial markets, liquidity refers to the ease of exchanging a digital asset into cash. Regarding cryptocurrencies, liquidity refers to a coin’s capacity to be quickly exchanged into either cash, which is the most liquid asset, or other digital assets.
All traded assets, including cryptocurrencies, require liquidity. Low liquidity levels indicate market instability, which causes irregular price spikes. On the other hand, high liquidity shows a steady market with steady price movements.
Since an increasing number of people are interested in crypto, purchasing or selling cryptocurrencies in a liquid market is simpler because buy or sell orders are fulfilled quicker. Considering the fast-paced characteristics of the cryptocurrency markets, it means that a transaction may be entered or exited at any time of the day, 365 days a year.
Now, when setting up a crypto exchange, you should know what a crypto liquidity provider is and why you need one.
Among the most crucial components of trading cryptocurrencies is ensuring that all transfers are smooth and fast. But, if you are just beginning in this business, it will not be that easy. Providing decent trading volume to facilitate simple buying and selling of your selected currency and employing various orders such as stop-loss, limit, and market orders will definitely help in this activity.
Liquidity providers are often large companies or groups of individuals that work to guarantee that operations run effectively and that pricing remains reasonable whenever possible. Mostly, these organizations utilize automated systems to place buy and sell orders at distinct intervals, which allows them to provide you with a reasonable price without waiting a long time to acquire the best value. Although these companies may charge a subscription payment, it is usually worth it if you want people to utilize your exchange safely and securely and to have sufficient Bitcoin liquidity.
Many variables should be examined when selecting which business to utilize. One such variable is whether the LP has adequate crypto liquidity to allow you to purchase or sell the cryptocurrency of your choice quickly. Looking at their volume stats is a smart way to begin. Those with a high number of deals, in general, are a strong sign that everything will work smoothly and without pressure. Furthermore, various factors, like the size of the business and how long it has been in operation, might impact liquidity.
Remember that everyone involved benefits from cryptocurrency liquidity providers. Every cryptocurrency exchange, including traditional stock or foreign exchanges, requires at least one or more individuals or entities to contribute to the smooth operation of their trading systems. The term “crypto market makers” is often used when discussing crypto markets. A market maker creates prices based on demand so that you may purchase or sell your currency straight to the marketplace without any complications. Without the work of MMs, exchanges would not function as they do nowadays.
So what does a crypto liquidity provider do in practice?
Crypto liquidity provides many benefits to exchange clients, one of which is reliable market data. This information may be used to guarantee that you are making the appropriate purchasing and selling decisions, as well as to avoid problems caused by prices that are not in accordance with what they should be. Having liquidity providers in place ensures a better overall experience for traders. Worth mentioning is that those who decide to become liquidity providers seek profit from the platform fees. They can boost their chances of profit by utilizing market data to develop more successful trading methods. Those that are skilled at providing liquidity can make a lot of money.
Why would you seek a liquidity provider?
Liquidity providers are not required on every cryptocurrency exchange, although it is highly recommended to collaborate with one. With no liquidity providers, it would be extremely challenging for users to purchase and sell cryptocurrencies on exchanges without experiencing difficult times. Most reputable exchanges have strong volume statistics, which is achieved mainly thanks to the liquidity providers that do their part to keep things running smoothly. You may be confident that if you choose a high-quality LP, you will not encounter any serious issues.
Moreover, without crypto liquidity providers, your exchange will not be able to offer your consumers reliable market information. This implies that if prices are set excessively high, traders may lose money. Liquidity providers are critical for preserving price consistency and guaranteeing that those who purchase cheap and sell high do not lose money.
Also, it is critical to use liquidity providers if you want to prevent low pricing when utilizing a crypto platform. This assures that the platform will function properly and without difficulties. To guarantee that everything functions correctly, you should pick a trustworthy provider for your liquidity requirements. Thus, you may be confident that the organization will carry out its responsibilities most efficiently and securely.
What Factors To Consider When Choosing The Crypto Liquidity Provider?
Every single brokerage business must individually assess its own demands and consider various aspects in order to choose the optimal liquidity provider. Do proper research by considering the factors described below.
Prior to picking one, ask yourself:
What do they offer?
The broker must be familiar with the products and liquidity terms offered. Besides the FIX protocol and historical information, the liquidity provider should provide multi-asset liquidity. Preferably, the platform should also enable users to set up wallets in several currencies and handle deposits and withdrawals in all significant stable tokens and crypto assets.
How do they perform?
Since the crypto market is highly unpredictable, you should be prepared to deal with issues when they arise. As a result, all entities that you collaborate with should have access to an automated trading server provided by your liquidity provider in order for the activity flow to be tracked.
Are they trustworthy?
You may establish your exchange platform’s trustworthiness by partnering with a reputable liquidity provider. However, in order to achieve that, you should avoid an LP that is showing poor performance and might bring troubles that nobody wants to have. That said, it is critical to choose a firm with a strong reputation.
What about the market depth?
Market depth is the capacity of a market to sustain reasonably significant market orders without substantially affecting the price of the assets. This indicator reflects the currency market’s liquidity and diversity. The deeper a market is, the more buy and sell orders there for every price level.
Is there a reporting mechanism implemented?
Whenever a liquidity provider has a sophisticated and automated reporting system, it is simpler to meet regulatory obligations. Trading reports, FIX reports, swaps, rollover reports, and order book access are examples of standard reporting formats.
Are they available around the clock?
Your liquidity provider must be accessible and ready to answer your requests for information as soon as possible. Besides that, ensure the LP includes as much detail as possible in the agreement and properly clarifies these requirements.
Are their services worth the money?
Liquidity providers’ prices should feature competitive spreads, lower fees, and no restrictions on swaps. Moreover, ensure that there are no hidden fees and that the prices fit your needs.
Do they provide quality data feeds?
Customers should have access to reliable and consistent data feeds from their liquidity providers. The price feed needs to include data from the interbank foreign currency market as well as live quotations from the appropriate exchanges. Inadequate distribution of pricing data may result in price gaps.
Lastly, double-check their authenticity.
Liquidity providers should be regulated in the same way that brokers are. Therefore, ensure that they use industry-standard methods. It would be even better if they were backed up by a prime broker.
Also, do not forget to check the following reporting packages that every solid liquidity provider should have.
- Email reporting
- Reporting of closed and open transactions from the specified time period
- FIX bridge reporting
- Profitability reporting
- Hedging adequacy reporting
Now that you know what factors to consider for the best liquidity crypto provider, let’s check where and how to find crypto liquidity providers.
In Search Of Crypto Liquidity Providers
Let’s take a look at several factors that will help you find the finest crypto liquidity provider for your brokerage.
Do proper research
First things first, look up the most popular solutions available on the internet. Consider their ratings, feedback, regulatory obligations, and trade volumes. The cost of their services, financial efficiency, as well as its trading infrastructure are other vital qualities.
Remember that your objective is to select a trustworthy LP. Such a platform will make you feel more assured at times of market spikes and moments of calmness, i.e., minimal fluctuation.
Ensuring all main instruments are included
After you’ve finished your homework, you should compare your findings to choose the finest cryptocurrency liquidity providers for your company. The most valuable criteria are the number of instruments, trading circumstances, the presence of margin trading, and other vital procedures employed. Pick the best crypto exchange company based on the findings.
Fix API
The FIX (Financial Information eXchange) protocol is a standard procedure for placing orders, sending cancellation requests, and receiving data. Messages in the FIX protocol format are arguably the most useful approach for an exchange and its liquidity provider to connect. It is not, however, limited to currency trading. In reality, stocks, commodities, futures, and options exchanges employ FIX API as well. It’s utilized by everyone from Tier 1 institutions to retail brokers and even retail traders. It is an open communications standard that is not controlled by a single person or entity and may be structured to fit the needs of each business that uses it.
Comparison of offers from selected crypto exchanges
You can request proposals from crypto exchanges after analyzing their specified criteria. Evaluate the alternatives you receive based on the elements that are important to you, such as pricing, commissions, or conditions of collaboration. You must examine the data and select the best liquidity crypto provider.
B2Broker As The Finest Solution For Crypto Liquidity
Thanks to the growing prevalence of cryptocurrency trading, the need for liquidity has already become increasingly apparent, and many brokers are now attempting to capitalize on this newly emerging market. B2Broker.com has developed as one of the industry’s main sources of Bitcoin liquidity, supplying liquidity to several bigger and smaller FX brokers and exchanges.
B2Broker’s liquidity service is a potential and simple-to-implement alternative for brokers. B2Broker, as a Prime Broker, uses Best Bid Best Offer (BBO) to minimize slippage by splitting mismatched orders from several cryptocurrency exchanges and liquidity sources into many pieces. Tight spreads, minimum commission, high-speed market execution, no cancellations, and a robust matching engine handling thousands of orders per second are hence possible.
B2Broker provides cross-connectivity to six distinct trading platforms: MT4, MT5, One Zero, Prime XM, Integral, and B2Trader, and may connect to any system by Fix API, Rest API, or Socket API. CFD liquidity, cash liquidity, cash trading, and OTC trades may all be provided to any trading system.
Furthermore, B2Broker provides accounts not just in USD and EUR, as most providers do, but also in the most popular cryptocurrencies, like BTC or ETH. B2Broker now accepts all primary stable tokens and cryptos for depositing and withdrawing to prevent delays and the requirement for a third party such as a bank. Any stablecoin is entitled to a 1-by-1 USD deposit and withdrawal.
Bottom Line
Traders value liquidity above everything else because they want orders to be filled immediately. When it comes to cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, and other prominent assets, an exchange should not have any difficulties in providing liquidity. If there is insufficient liquidity, users will simply find other solutions, and your reputation will fade away.
Luckily, nowadays, there are numerous solutions that can be employed. B2Broker is a great option for brokerages since it provides top assistance and professional arbitration. Traders may finish a deal almost instantaneously, eliminating price slippage. Thus, you have a unique chance to take your business to the next level by collaborating with B2Broker.
