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  • Writer's pictureLaura Duò

The Art of Liquidity Management: how Institutional FX brokers stay on top of their game 

Updated: Apr 24

In the fast-paced world of Institutional FX trading, being good at managing liquidity is crucial. It’s what helps brokers to make sure they can guarantee competitive and stable liquidity to their clients and good flow to their liquidity providers. Let's delve into what it takes for Institutional brokers to excel at managing liquidity in ever-changing markets. 

Market microstructure know-how 

Understanding the intricacies of the FX market is paramount. Brokers need to constantly have an overview of what is happening with respect to the liquidity landscape. To dive deeper into which parameters brokers need to monitor, here are a few crucial points to succeed in this business.  

The key drivers to evaluate clients’ performance are: 

  • Fill ratios; 

  • Average response times (ms); 

  • Median spreads in top traded currency pairs; 

  • Hours of trading activity; 

  • Spread competitiveness during peak hours; 

  • Profitability profile (also called markouts). 

Whilst the most important drivers to evaluate LPs’ performance are: 

  • Spread competitiveness; 

  • Risk management capabilities (internalization rates); 

  • Fill ratios; 

  • Last look policy; 

  • Median response times (ms); 

  • Customers’ markouts profile; 

  • Monitoring market impact. 

Robust Technology Framework 

A robust technological infrastructure, including high-speed connectivity, guaranteeing

smooth and stable fill ratios is essential. At AlpFin, we use Lucera to offer top-notch, reliable electronic trading services and we leverage their tools to provide insightful analytics to our clients and LPs.  

Diverse Liquidity Provider Network 

By establishing strong relationships with a selected pool of LPs, including banks, hedge funds, and family offices, brokers can obtain a high-quality liquidity stack. AlpFin is indeed connected with LPs in all key regions mitigating risks associated with regional and sectorial liquidity concentration. Reliance on a distributed base of LPs enhances brokers’ ability to offer tight spreads and execute large orders without significant market impact at all trading hours. At AlpFin, through liquidity diversification, we are committed to maintaining 

competitive liquidity even during off-peak trading hours

Effective Risk Management 

Institutional FX brokers must implement comprehensive risk management strategies to safeguard against market volatility, credit risk, and operational risks. This involves setting appropriate risk limits, continuously monitoring positions employing advanced hedging mechanisms. 

Here below are a few key drivers that could help shaping an efficient risk-management framework:  

  • Auto-hedging of open positions; 

  • An easy-to-read trading blotter; 

  • Ease of visualization of systems’ status and position; 

  • Round-the-clock eFX technology support team; 

  • Professionally trained Operations Team. 

Transparent and Fair Execution Policy 

Transparency in execution and pricing is fundamental to maintaining clients’ trust. Brokers should embrace fair execution policies that prioritize client interests in line with the FX Global Code of Conduct. Transparency about brokers’ liquidity sources and execution methods also contributes to building credibility and long-term client relationships. Therefore, it is crucial to have a rulebook collecting execution policies that covers any possible scenario. 

Continuous Monitoring and Adaptation 

Continuous monitoring of both internal operations and external market conditions allows brokers to adapt their liquidity management and operations decisions in real time. Leveraging analytics and feedback mechanisms can aid in identifying areas of improvement and innovating to meet changing market conditions.

According to AlpFin’s experience, brokers should structure their operations according to the following pillars to achieve efficiency and profitability

  • Standardized procedures; 

  • Transparent pricing policies; 

  • Clear risk management practices; 

  • Stable and reliable eFX tech environment; 

  • High level of coordination across Ops, LM and Sales; 

  • Excellent communication skillset encompassing internal and external interactions. 

Client-Centric Approach 

Institutional clients, such as hedge funds, banks, and other financial institutions, have varied requirements in terms of their execution style. A client-centric approach, combined with flexible liquidity solutions, enables brokers to meet these diverse needs effectively. Good communication is key to creating long-lasting relationships both from a sales and LM perspective. 

To put it in a nutshell, excellence in liquidity management is not achieved by chance but through the deliberate and strategic alignment of market knowledge, effective sales and marketing, technology, risk management and client focus. Institutional FX brokers that master these components can navigate the complexities of the FX market with agility whilst securing a competitive advantage, driving their growth and success in an ever-competing financial landscape. 

And where does AlpFin fit into it? 

Our cutting-edge technology, diverse network of liquidity providers, and client-centric approach ensure that we deliver top-notch liquidity solutions tailored to the needs of institutional clients. By partnering with AlpFin, you're not just getting a brokerage service – you're gaining a strategic ally committed to optimizing your trading experience and maximizing your potential in the eFX market. To navigate FX liquidity together and unlock new opportunities for growth, contact us at


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