From Transactional to Strategic: The New Era of Broker–LP Relationships

Following our recent feature in e-Forex magazine, where James Gavin, Head of Trading Europe at iSAM Securities, discussed the evolving approach to collaboration between brokers and liquidity providers (LPs), we take a deeper look at how these relationships are shifting. What was once a largely transactional model is now becoming more strategic, shaped by technology, data-driven insights, and closer partnerships designed to deliver greater value for brokers and their clients.

How would you describe the traditional relationship between FX brokers and their liquidity providers (LPs) – and what does each party gain from this relationship? 

The purpose of the relationship is for the LP to understand the brokers business and establish how the two parties can work together. At its core, the LP’s role is to understand the broker’s business model and flow profile, enabling them to tailor their liquidity provision accordingly. This allows the LP to deliver more suitable pricing, execution, and support that reflects the broker’s specific needs.

Beyond pricing, LPs can also provide feedback on where the relationship is and isn't working and what improvements can be made so that, in time, both parties can establish how they should adapt overtime. As the partnership develops, the LP is able to refine and enhance its offering, ultimately strengthening the broker’s ability to serve its own clients more effectively.

Liquidity provision in FX brokerage operations has evolved into a more complex and technology-driven operation – how has this impacted brokers’ interaction with LPs? 

Human interaction between brokers and LPs is of paramount importance. With so much of the business-as-usual activity now electronic, maintaining close dialogue on how technology-driven operations are developing is essential. The relationship between LPs and brokers is increasingly geared towards shaping and informing technology driven offerings in order to maximise the success of the relationship.

What are the key functions of an LP in the FX market? 

An LP’s core function is to provide a relevant liquidity offering to their client that is mutually beneficial. On top of pricing and execution responsibilities, LPs also play a key role in keeping clients informed on important market developments and sharing insights into market direction. In doing so, they can help their clients evolve, ensuring the relationship remains both collaborative and value adding.

To what extent does the collaboration between brokers and their LPs vary depending on the trading and business model involved? 

As trading and business models evolve, it is crucial to stay in closer collaboration with LPs to ensure that the model is evolving in a beneficial manner to both parties. When a broker changes its model, it often creates downstream impacts on the LP. This is where collaboration is key so as to allow the LP to work with the broker and make the evolution a success from both sides.

What are the benefits to brokers of forming closer, ‘one-stop-shop’ partnerships with LPs in terms of access to capital, more competitive pricing, improved risk management, etc? 

The more touch points there are between a broker and their LP, the stronger and more collaborative the relationship becomes. This allows the LP to deliver more enhanced value, through more competitive pricing, tailored liquidity solutions and improved risk management support. This ultimately empowers brokers to provide the best possible service to their own clients.

How do clients benefit when their brokers adopt this approach?

When brokers build closer partnerships with their LPs, they gain access to a more competitive offering including tailored pricing and enhanced execution quality. This, in turn, enables them to deliver a stronger, more efficient, and client-focused service by providing their own clients with deeper liquidity, tighter spreads, and a consistently improved trading experience.

Is there scope for LPs and their FX brokerage clients to collaborate even more closely - and how will that impact the FX market? 

There is definitely scope for LPs and brokers to strengthen their relationship further. While the traditional model has been to work with multiple LPs to build a diverse and resilient pricing stack, there is also potential for more selective or deeper partnerships where LPs to engage on a more exclusive basis. Achieving this requires robust infrastructure and stability, but when in place, closer collaboration can drive improved pricing, enhanced execution quality, and more efficient market access. Ultimately, these partnerships would support a healthier and more innovative FX market.