Episode 02: How To Choose The Right Liquidity Provider

In today’s fast-moving institutional trading environment, it is essential to partner with a reliable, scalable, and transparent partner to support your trading strategy. There are various types of liquidity providers, that can significantly differ in costs, liquidity pool, support, and transparency.

At iSAM Securities¹, we work with a range of global clients, offering them precision, depth and resilience in volatile market conditions. In this article, we share our first-hand experience to guide you in selecting a liquidity provider that best suits your needs

What is a Liquidity Provider?

A liquidity provider is typically an intermediary that supplies buy and sell quotes in a market. They offer services across various markets, including forex, stocks, bonds, and commodities. For more in-depth information, view our quick guide on Institutional Liquidity Providers Explained.

Evaluate Your Objectives

It’s essential to clearly understand your objectives and ensure they align with your chosen provider. Below are areas that should be taken into consideration:

• Goals and primary focus – Is this execution quality, market breadth or access to more niche markets?
• Trade size and frequency – Providers may specialize in high-volume, low-latency, or more tailored flows.
• Specialist solutions or technologies – Are you trading in more niche markets? Do you require specific integrations? Do you align with the provider from a regulatory standpoint?
• Budget – Is the provider transparent and clear with their pricing structure? Does this align with preset budgets?
• Long-term considerations – Could the provider support plans to enter new markets?

Compare Execution Speeds

Execution speed refers to the time it takes to complete an order after it has been submitted to the provider. This time can significantly impact risk management and speed-sensitive strategies. Key factors to evaluate include:

• Understanding of the execution speed that you require – be sure to ask providers for their average execution time.
• Gain an understanding of the infrastructure that they are using – what are their server locations? Uptime information?
• Open up test accounts and compare speeds - conduct tests during different market conditions.
• Look for independent reviews and reports.

At iSAM Securities, we offer an average fill time of less than 10 milliseconds supported by a proprietary infrastructure built for precision and high-speed execution.

What Is Their Liquidity Pool?

The liquidity pool relates to the breadth and depth of tradable assets that a provider holds. These can include FX, commodities, and indices. The size of a liquidity pool can influence the efficiency of trade execution. Criteria to consider include:

• Assess the provider's order book DOM (depth of market) information.
• Compare their market assets and breadth.
• Investigate and measure any slippage.
• Understand liquidity sourcing.
• Compare their transparency and willingness to provide requested information.

iSAM Securities offers a deep, robust liquidity pool consisting of FX, precious metals, and a range of index swaps. We continue to grow our portfolio based on clients' wants, needs and industry trends.

Importantly, iSAM Securities is also known for consistent and stable pricing, even during volatile periods. For brokers, this means greater spread predictability, tighter quote distribution, and more reliable performance for end clients. Consistent pricing not only improves execution quality but also helps brokers manage risk more effectively and reduce client complaints tied to price variation or slippage.

What Technology Do They Use?

This infrastructure and software used for executing trades includes servers, networks, trading platforms, connectivity protocols, and market data tools. The tools and technological systems used by providers will have a direct impact on trade performance, including quality, stability, and resilience in volatile conditions. In the selection process, you should compare the technologies used and how they align with your trade objectives.

Areas to consider include:

• Network infrastructure and latency optimization
• Speed and performance across varying conditions
• Security features such as encryption
• The ability to customise solutions

iSAM Securities uses a combination of our network setup, physical servers, CPU pinning, and low-latency architecture to cut down latency and maximise the speed of the physical infrastructure through direct connections, avoiding unnecessary extra hops.

Additional Services

It is also important to consider a liquidity providers offering outside of their core capabilities. Additional products or services can play a critical role in decision making and reducing risk and prove that the LP has their clients best interests at the heart of their offering.

• What other products or services do they offer?
• Do they work across any other client type?
• What resources do they have on hand for clients to use?
• Have they considered every aspect of your trading journey in their offering?

iSAM Securities Radar allows you to make informed decisions and analyse trading environments with ease. In response to concerns around latency, iSAM Securities Radar includes an advanced aftermath tool showing a detailed analysis of the profitability of trades across a specific time frame. Users can evaluate trade profitability for risk that has been offset across different time intervals with insights into the quality of trades sent to a liquidity provider, helping to avoid potential spread and liquidity deterioration, and aiding in the detection of traders taking advantage of latency across the technology stack.

Summary

Selecting the right liquidity provider can significantly impact trading profitability and efficiency. Due diligence is vital, involving areas such as support, technology, pricing, and liquidity pool. If you require further information or want to learn more about our offering and how we can support your strategy, get in touch with the team.

¹ iSAM Securities (UK) Limited, iSAM Securities (HK) Limited and iSAM Securities (Global) Limited, iSAM Securities Limited and iSAM Securities (USA) Inc. are together “iSAM Securities”.