What Is Liquidity Pool and How Is It Important To Cooperate With a Reliable Liquidity Provider
Different financial markets are open for new participants. Forex prime brokers and cryptocurrency platforms must comply with the highest market standards of providing services; otherwise, they won’t be able to overtake competitors and attract new traders/investors. In this case, liquidity means a lot for the success of the financial company.
The importance of liquidity for a brokerage or an exchange success
The success of every FX broker, cryptocurrency exchange software and other financial business depends on the customer’s base. The more participants join the platform, the higher the company’s profit.
As for traders/investors expect to get their Bid/Ask orders executed immediately by the market price. When a specific asset is liquid, there are no price fluctuations or a high spread. It allows market players to leverage various trading strategies. If the liquidity of assets is low, traders cannot buy or sell fiat and digital currencies at a market price; this is why users may choose another dealing desk.
Therefore, any newcomer brokerage, crypto payment solution or other financial company must partner with a reliable liquidity provider. It opens new horizons for the business with a connection to the top global banks and funds.
What is a pool of liquidity?
When it comes to liquidity pools, the vast majority of participants consider the FX sphere. However, the cryptocurrency market also uses pools of liquidity. Let’s learn more about the differences that are essential for those whostart cryptocurrency business.
On the Forex market, a liquidity pool is a group of large players that execute all trader’s requests in the order book. Level 1 pool aggregators provide access to major participants (the world’s biggest banks, investment banks, and more). As for Level 2 liquidity pool providers, connect a brokerage company to a particular bank or several of them.
It’s vital to consider the volume of the preferred pool of liquidity since it affects the speed of order filling.
When we analyze this aspect from the viewpoint of cryptocurrency exchange development, the notion is slightly different. Liquidity pools cover all coins that are blocked in smart contracts; this is why traders/investors may buy crypto assets directly from pools. The purchasing mechanism is different from the one utilized on cryptocurrency exchanges, where participants need to place orders. The automated LPs generate the token’s quote, filling requests instantly. Crypto pools of liquidity are vital for projects with a low customer’s base and maintained by liquidity aggregators.
Why does a newcomer brokerage need to partner with liquidity pool providers?
Business founders need to consider a set of vital factors before creating a crypto exchange or an FX broker. The first impression is crucial, as traders discuss different startups on specific websites. If investors notice some troubles with a financial solution, they will look for another product.
On the Forex market, pools of liquidity allow traders to get their orders executed instantly. Further, high spreads, gaps and price slippage are excluded. Crypto liquidity pools help to fill orders with low rated coins on the cryptocurrency exchange White Label.
Where to find a reliable liquidity pool provider
Dozens of companies provide newcomer brokerages and exchange access to deep liquidity pools. Therefore, it’s challenging to select the best option. First, you need to compare conditions from several companies.