What is a Liquidity Provider in Forex?

Understanding Liquidity Providers (LPs)

A liquidity provider streams continuous bid and ask prices into a broker's trading platform. Banks, non-bank market makers, and prime-of-prime institutions all act as LPs, ensuring clients can execute trades without significant delays.

Role of LPs in Forex

LPs aggregate order flow, hedge exposure, and compete on spreads. The quality of your broker's LP relationships directly influences spreads, depth, and the likelihood of partial fills.

Evaluating LP Quality

Look for consistent two-way prices, minimal slippage, and low rejection rates. Ask brokers about their LP mix and whether they internalize flow (B-book) or pass it through (A-book).

Last‑Look Policies

Last look allows LPs a brief window to accept or reject trades after you hit. It protects them from stale quotes but can worsen client fills during fast markets. Preference‑match (internalization) may improve fills for some flow profiles while increasing hold‑time for others. Ask for statistics by venue and time of day.

Evaluating Your Broker’s LP Mix

• Diversity of bank and non‑bank LPs, plus geographic distribution.
• Historical spread/latency under stress events vs. normal periods.
• Rejection and partial‑fill rates across instruments and sizes.
• Escalation path for persistent execution issues.

Routing and Flow Classification

Some LPs penalize ultra‑short‑hold or latency‑arbitrage strategies by widening spreads or throttling. Understand how your flow is classified and whether smart‑order routing can steer it to LPs best suited to your profile. If your strategy is sensitive to last look, prefer firm‑liquidity venues.