Paul Groves Sales Director at CFH Clearing
Paul Groves Sales Director at CFH Clearing

Are spreads the key criteria when selecting a Liquidity Provider?

According to Paul Groves, Sales Director at CFH Clearing, retail brokers can often be unaware as to how best to select a Liquidity Provider. They focus on spreads as their key driver without always considering other priorities such as depth of market, quantity available at the Top of Book (TOB), commission, service levels, speed of execution, order handling and rejections. In our Mythbusters feature about liquidity, he identifies the top misconceptions he believes are most commonly experienced by brokers worldwide.

More liquidity providers means tighter spreads One of the most frequently asked questions we receive is how many providers make up the CFH price?  Some potential clients want to check that we have ten, twenty or even more as they believe this will have a positive impact on pricing. In our view this is one of the biggest misconceptions out there.  Let me explain why. Providers will show good pricing to win as much business as they can on their terms. It is logical that if they are up against five or six other providers then they are in a good mix with a healthy chance of receiving some decent flow if they remain competitive. If their quality of pricing reduces there are enough Liquidity Providers in the mix to take over. This leads to a healthy, competitive environment.   When you start asking banks and non-banks to join a mix of ten to twenty other providers then their interest diminishes considerably. As a general rule, the more Liquidity Providers in the mix, the less interest they...continued

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