How technology is transforming LP relationships with clients

According to Andrea Michael, director of institutional sales at StoneX Pro, liquidity management is becoming more complex because there is no longer a single, consistent pool. “[Liquidity] is fragmented across venues, streams and execution models that behave very differently depending on pair, ticket size and market regime. What looks like the ‘same price’ can deliver very different outcomes once you factor in fill ratios, response times, rejects and slippage. For trading firms, that means liquidity selection can’t be a oneoff decision – it has to be continuously measured and tuned. The key challenge is separating headline pricing from real execution quality and doing so with enough transparency and control to manage cost, performance and governance expectations without adding excessive operational burden.”

Fortunately, technology is helping to shift liquidity management from reactive execution to measurable optimization, says Michael. “Realtime analytics and automation allow firms to move beyond static routing and afterthefact reporting by making decisions based on current conditions and expected outcomes, improving consistency, reducing manual intervention and helping predict likely slippage or rejection under specific market conditions.”

Durable differentiator

That said, technology alone is rarely a durable differentiator, as tools are becoming increasingly accessible across the market, says Michael. “The firms that get the most value are those that combine strong technology with marketstructure expertise and an LP relationship that can translate data into practical stream configuration, smarter risk settings and better daytoday execution outcomes.”

Technology can help meet demand for tailored liquidity, coming from clients who have moved beyond procuring the ‘best spread’ and are instead optimising for strategyspecific outcomes – predictability, stability, and the true cost of execution, says Michael. This includes systematic liquidity consumers looking for consistent fills, brokers and platforms needing stable pricing to support their own client commitments, and payments/corporate flows where certainty and operational efficiency matter as much as price. 

“Technology enables this shift by allowing segmentation by pair, size, session and volatility regime, supporting dynamic pricing based on realtime risk and flow conditions, and enabling stream customisation that fits the client’s execution profile. Crucially, tailoring only works when it’s informed by a strong providerclient feedback loop – data plus relationship – rather than technology in isolation,” says Michael. 

New technology strengthens LP relationships when it turns execution into a shared, dataled optimisation process rather than a transactional debate about spreads, says Michael. “Transparency tools create a common language around what is happening, why outcomes vary, and what to change to improve them. Importantly, not all liquidity consumers can fully leverage advanced tooling, so the relationship still matters; clients value LPs that can interpret the data, explain outcomes clearly, and translate insight into practical adjustments. In strong partnerships, both sides invest time and effort in understanding flow characteristics and constraints, which improves synchronisation of requirements and creates better, more repeatable outcomes.”

Selecting LPs is increasingly about fit, resilience and alignment, not just price, says Michael. “Firms should assess liquidity quality, consistency across condition, transparency and technology compatibility. They should also consider credit strength, operational resilience and the provider’s willingness to collaborate and tailor liquidity as requirements evolve. 

“Technology will matter more because it underpins measurement and optimisation, but it won’t be enough on its own: as tooling becomes commoditised, LPs that combine strong technology with financial strength, responsive coverage and relationshipdriven collaboration will be the ones that remain core partners,” says Michael. “That blend – technology plus partnership – is ultimately what enables clients to control the full cost of liquidity and achieve more consistent execution outcomes.

Fragmented liquidity mix

FX liquidity management is more complex because firms are dealing with an increasingly fragmented mix of liquidity providers, venues, and execution methods, while at the same time, client flows are more concentrated in their asset selection but more differentiated in their flow profile, says James Alexander, chief commercial officer at 26 Degrees Global Markets Group. 

“Put simply, managing highly concentrated client flows with widely varying market impact profiles and aligning these with an increasingly disparate liquidity landscape is taking more focus than ever before,” says Alexander. “On the client side, speed is crucial. Identifying changes in flow profiles as they evolve and react to volatile market conditions has become a process of sifting through ever more noise and data.”

On the liquidity side, benchmarking of mid-points has been increasingly important especially around market open and close, says Alexander. “With geopolitical turmoil at a crescendo, market open and close phases have seen increasingly defensive and fragmented liquidity forming the basis for continuous mid formation. That raises the operational burden of continuously reassessing pricing quality across sources, and it increases the risk of over-aggregation – where combining too much liquidity without enough discrimination can worsen market impact outcomes.” 

Liquidity management has also become an optimisation problem, not a spread comparison, says Alexander. “Firms need to manage both execution cost and the downstream cost of risk, because a pool that looks competitive at entry may be expensive once post-trade drift and LP behaviour are taken into account – particularly in aggregated environments where adverse selection can build quickly. The practical challenge is building a repeatable curation process that segments LPs by decay-adjusted outcomes and supports stable, long-term liquidity partnerships rather than short-term ‘tightest quote’ selection.”

To mitigate this complexity, technology such as AI, real-time analytics and automated platforms has made FX liquidity management more precise and predictive, says Alexander. “The practical shift is that liquidity tooling is being embedded alongside the price formation and order execution process, rather than sitting behind it as an after-the-fact reporting function. Near real-time analytics give firms a continuously updated view of liquidity behaviour, outlier detection – in whatever form it may take, from off-market quotes to price latency – ensures the liquidity mix can be adjusted rapidly as conditions evolve – not reviewed and corrected later.”

That foundation enables automation that’s genuinely useful: event-driven rules and models can respond to changes in risk and market conditions quickly, reducing reliance on manual tuning and making outcomes more consistent. 

Demand for more tailored liquidity is being driven by the fact that client flow profiles are increasingly differentiated even as concentration in highly traded currency pairs and precious metals increases, says Alexander. “It’s important to remember that clients don’t all want the same thing from pricing. Some prioritise a low-noise, consistent view of the mid with lower spread volatility, while others are comfortable with more dynamic pricing if it better supports their trading style or objectives.”

Technology makes that tailoring scalable, says Alexander. “It enables configurable liquidity pools, benchmarks, quote filters and spread settings, supported by ongoing monitoring so the configuration stays aligned to a client’s flow profile and preferences as conditions change. In practice, delivering that tailoring at scale relies on flexible order-routing and flow-management controls backed by real-time monitoring, so we can manage different flow profiles without pushing extra operational effort or infrastructure onto the client, while keeping core pricing behaviour stable.”

Similarly, working with a smaller, curated group of LPs can improve outcomes because it reduces noise and inconsistency in execution under normal market conditions, says Alexander. “In an aggregated environment, it only takes one LP with a more aggressive risk/hedging response than its peers to amplify market impact and degrade execution for the whole pool. A tighter LP set makes it easier to align behaviour, stabilise pricing, and keep execution quality more predictable – especially as flows become more differentiated. As always, an aggregated stack is only as fast as the slowest input price and that, at the end of the day, remains a crucial factor.

“Those benefits are amplified when LPs have fully embraced modern analytics and automation, because it becomes easier to evidence performance and iterate quickly: tighter feedback loops, clearer diagnostics on what’s driving costs, and faster, more targeted adjustments to pool composition and execution settings. The result is less spread shopping and more consistent, measurable execution outcomes over time,” says Alexander. 

The arrival of new technology can have a material impact on FX liquidity management, says Alexander. “Once analytics are embedded as a real-time control layer, liquidity management moves from a transactional ‘quote-and-trade’ model toward a continuous optimisation loop built around measurable outcomes (execution quality, impact, stability). That naturally supports a more collaborative partnership, because the LP is no longer just providing prices, it’s actively using data to improve how liquidity is curated and delivered over time.”

Continuous innovation from LPs is particularly key, says Alexander. “If a provider can’t offer transparency, workflow-integrated analytics, and adaptive behaviour through periods of higher volatility, it becomes harder to justify their place in curated pools – even if their pricing looks competitive in benign conditions.”

Credit constraints

According to Jessica Zhao, e-FX trading at iSAM Securities, it is not just the fragmentation that makes liquidity management increasingly complex. “Credit constraints can also limit access to certain LPs, meaning firms have to be more selective in how they source and manage liquidity,” says Zhao. 

Fortunately, technology such as AI, automated platforms, and real-time analytics are continuing to improve the precision and efficiency of liquidity management, says Zhao. “They enable more sophisticated pricing and risk modelling, decreasing reaction times to changing market conditions. Automated hedging and smart order routing for example, help to optimize execution by directing trades to the most appropriate liquidity sources in real-time.”

Technology is also helping LPs to provide more transparency. “Leading FX providers are using technology to deliver deeper insight into execution and cost analysis, allowing clients to better evaluate liquidity providers more effectively and optimise their trading strategies. Advanced analytics also provide more insight into market impact and information leakage, giving clients greater oversight of how their trades are executed and the true cost of liquidity.”

FX liquidity management is set to incorporate an increasingly broad range of data and analytics, including cross-asset insights beyond just FX in order to gain a more comprehensive view of risk and liquidity, says Zhao. “There is also likely to be shift towards more real-time evaluation enabling faster and more informed decision making.”

There is also an increased demand for more tailored liquidity and pricing, says Zhao. “Different client segments have different requirements and expectations of execution experiences. For example, our retail broker clients require more consistent top-of-book spreads and stable pricing during volatile periods. We use all our own proprietary technology that allows us to tailor our tools to those needs.”

Clients can also benefit from working with a smaller and technology-savvy group of LPs, says Zhao. “A more focussed LP set can be beneficial to clients as they are more tailored to their specific needs. Alongside improvements to transparency, more precise pricing, and efficient execution, a curated set of LPs can also result in better communication and therefore more consistent execution outcomes.”

New technology can also enable more measured and quantifiable evaluation of LPs, says Zhao. “This enables more data-driven dialogue between liquidity consumers and providers, promoting greater transparency and accountability. Data-driven feedback also helps LPs create solutions that are more closely tailored to the client’s liquidity requirements, strengthening the relationship and improving overall execution outcomes.”

FX trading firms also have to consider the quality of liquidity when choosing suitable LPs, says Zhao. “Improved technology tools now allow trading firms to measure different parameters more effectively, including quote quality (spread, skew, quote size), execution quality (fill rates and response time), and post-trade analysis such as mark-outs, market impact and potential information leakage. As these tools continue to evolve, technology will increasingly influence LP selection by enabling more objective, data-driven evaluation of liquidity providers.”

Noisy markets

It’s not necessarily the case that FX liquidity management has become substantially more complex, but there are many issues — such as fragmentation and information leakage — which remain very challenging for market participants, says Brandon Primack, global head of liquidity distribution 360T. 

“There is a tremendous amount of noise in the FX market today, so it’s important to be able to effectively sift through all of this and liquidity management plays a key role in this. I also think that many trading firms significantly underestimate both how much information is contained within their pricing requests and how few market makers truly hold sizable levels of FX risk.”

Primack also believes that technology like AI and real-time analytics is having a “huge impact” on FX liquidity management. “Far more liquidity takers have a broad range of analytics tools at their fingertips, enabling them to make much more informed decisions about how to execute. And increasingly, they’re leveraging these analytics on a pre-trade basis,” says Primack. 

“Better access to high-quality FX market data, especially for Forwards, has been critical in supporting such analytics and for allowing low alpha trading activities to be partially or fully converted to full no-touch automation,” says Primack. 

Technology is also being used to provide more insight and transparency to the traders demanding it. “It’s almost a cliche to say it at this point, but FX is becoming a more data-driven marketplace,” says Pirmack. “Therefore, making more robust pre-trade and post-trade data available to both buy-side and sell-side firms is imperative. The competitive advantages of good FX liquidity management are clear,” he says. “Reduced execution costs, minimised operational risk, increased trader productivity and a shift toward higher-value activities. Crucially, the right technology and effective liquidity management allow firms to calculate and quantify each of these benefits, making the value delivered to the organisation explicit.”

Primack and 360T also believes that technology enables and enhances relationships, rather than replacing them. “For example, automating low-value, vanilla FX flows, allows buy-side firms spend their valuable time having more interesting conversations with their liquidity providers about the larger or more complex order they need to execute. Similarly, having access to a larger volume of high-quality FX market data helps to elevate the conversations that liquidity providers can have with their counterparties and vice versa,” says Primack. 

Technology continues to constantly evolve, however, and the compression of spreads in G10 and the liquid Developing Market currency pairs will force more providers to innovate in order to stay relevant to their clients, says Primack. “An alternative approach could be to increasingly view providing liquidity in these instruments as simply a ‘service’ which they provide in order to potentially win the higher margin FX business of these clients.”

Collaboration and dialogue will remain essential though, particularly for more complex relationships, says Primack. “Where technology can add real value is in streamlining workflows for simpler interactions, making it easier for liquidity providers to service meaningful but operationally light clients. This frees both sides to focus their energy where it matters most.”