Maximizing Profits with Ultra-Tight Spreads

Tighter Spreads and Customer Retention

Did you know that acquiring a new customer can cost almost 7 times the expense of retaining an existing one? Plus, long-term customers become your unpaid brand ambassadors, who help acquire new ones! So, it is a win-win for a brokerage to provide existing customers best-in-class facilities.

Providing bespoke spreads across a wide range of financial instruments can give your brokerage an edge over the competition. Additionally, it disseminates the message that you have access to deep liquidity, which in turn helps improve customer acquisition.

Challenges Brokers Face in Offering Tight Spreads

Offering competitive spreads can be a differentiator in the intensely competitive financial markets. But collaborating with multiple institutions to facilitate deep liquidity is tedious. This is because many liquidity providers do not offer the same level of liquidity across a wide range of financial instruments or jurisdictions. Also, partnering with several institutions could add to your operational costs, which may end up turning traders off if you pass on the expenses to them.

Therefore, partnering with an experienced global liquidity partner is essential. Leveraging the expertise and experience of a trusted partner can allow you to focus more on value-added service provision, such as improving the customer experience and providing financial education to empower your clients.

How Professional Liquidity Provider Can Help to Avoid Slippage Issues

Experiencing slippage issues? They can lead to lower profits and bigger losses. Luckily, professional liquidity providers wield a toolkit designed to tackle these challenges:

• Deep Order Book available via FIX 4.3 or FIX 4.4:Thanks to FIX 4.3/4.4 integrations that allow full order book presentation, these providers ensure exact information about market conditions. This feature allows clients to assess the performance of each LP. Clients are able to choose the provided with deepest order books and most effective execution. What does it mean for you? A reduced risk of slippage and smoother trading experience.
• Order Book-Based Execution: No more limitations due to time priority order execution. By executing orders based on a full view of the order book, you can gain greater precision and better fills, effectively curbing slippage and optimizing your trades.
• Full Post-Trade Reporting: In-depth reporting for a better understanding of your trade executions. Spot slippage patterns and devise strategies to reduce them. Your trading just became a lot more transparent and efficient.
• Ultra-Fast Price Feeds: Access the most accurate, current market data thanks to ultra-fast price feeds sourced directly from exchanges and top-tier banks. Minimize discrepancies that could lead to slippage and make more informed decisions faster.
• It is highly important to have servers hosted in top-tier data centers worldwide. You can trust in the reliability and speed of your operations, regardless of where you are. These centers offer reduced latency for faster transactions and robust security measures for reliable uptime. So, whether you’re trading from London to Hong Kong, you’re assured of fast and efficient execution. Our recommendations: Equinix and Digital Reality.
• Maximum order size and maximum NOP (Net Open Position).

Two additional aspects that brokers should consider when selecting a Liquidity Provider (LP) are NOP Limits and Maximum Order Size.

NOP Limits are vital for brokers who hedge their net exposures. They must be aware of these limits on the LP side; otherwise, some orders might be rejected and the additional exposure might not be accepted. Every LP maintains different policies regarding NOP, so it’s advisable for brokers to consult with their LP on this matter before signing any agreement.

The second point is maximum order size. Liquidity providers should not artificially limit the maximum order sizes. The maximum order size should always be the result of the available tickets in the order book. It allows the clients to effectively hedge their exposures.

What to Look for in a Liquidity Provider?

During economically turbulent times, many investors tend to resort to shorting. But shorting requires deep liquidity for ultra-fast execution. Slippage might defeat the entire purpose of shorting.

To ensure that as a broker, you are equipped to offer best-in-industry forex spreads, look for the following in your liquidity partner:

• Access to institutional-grade liquidity across geographies.
• Multi-asset liquidity, for forex, stocks, indices, commodities, cryptocurrencies, ETFs, and CFDs.
• Licensed by regulators from various jurisdictions, including the FCA, CySec, KNF, IFSC, DFSA, and FSCA.
• Strong track record of partnerships across different countries.
• $0 volume commission on OTC instruments to drive activity.
• Transparent order book management to build customer trust.
• Rich tick data directly from exchanges with historical data for reference to bolster customer confidence.
• To maximize your outreach, look for multi-connectivity using global standards, such as FIX 4.3 and 4.4, xAPI, MT4/ MT5, and an array of gateways and bridges.

The Bottom Line

CW BANK is a liquidity provider for over 5,000+ instruments, including 2,000+ stocks and ETFs on 16 major exchanges across the world, 60+ currency pairs, 20+ cryptocurrencies on 9 exchanges, 20+ indices, and the most popular commodities. We are proud to have forged and sustained 100+ partnerships across more than 25 countries. Capitalize on our global network to maximize liquidity and enhance your product offerings. When you partner with CW BANK, you can offer customers the best possible market depth, execution speeds, and pricing with ultra-tight spreads.