Market StructureLP
Liquidity Provider
A bank, non-bank market maker or institution that streams two-way prices a broker can fill client orders against.
What Liquidity Provider means
A liquidity provider streams continuous bid and ask quotes in a given instrument and stands ready to trade against incoming orders. Providers include large investment banks, specialist non-bank electronic market makers, hedge funds and prime-of-prime intermediaries. Retail brokers typically connect to several providers at once and aggregate their quotes, taking the best bid and best ask available to form the price the client sees, then adding a markup or charging commission.
The number and quality of providers a broker aggregates determines how tight and how stable its pricing is, and how much size can be filled without slipping. Providers monitor the flow they receive and may widen quotes or reject trades from counterparties whose order flow is consistently unprofitable for them, a practice known as last look on some venues. That is one reason execution quality can differ between account types even when the underlying market is identical.
Worked example
If a broker aggregates ten providers whose best bid is 1.08495 and best ask 1.08505, it may show clients 1.08485 / 1.08515 after applying a one-pip markup.
Related terms
- LiquidityThe ease with which an instrument can be traded in size without materially moving its price.
- Market MakerA firm that quotes both a bid and an ask and takes the opposite side of client trades from its own book.
- STP (Straight Through Processing)An execution model in which client orders are passed automatically to external liquidity providers rather than dealt internally.
- ECN (Electronic Communication Network)An electronic venue that anonymously matches buy and sell orders from many participants in a shared order book.
- MarkupThe amount a broker adds to a wholesale price or rate before showing it to the client, forming part of its revenue.
Frequently asked questions
What does Liquidity Provider mean in forex trading?
A bank, non-bank market maker or institution that streams two-way prices a broker can fill client orders against.
How does Liquidity Provider work in practice?
The number and quality of providers a broker aggregates determines how tight and how stable its pricing is, and how much size can be filled without slipping. Providers monitor the flow they receive and may widen quotes or reject trades from counterparties whose order flow is consistently unprofitable for them, a practice known as last look on some venues. That is one reason execution quality can differ between account types even when the underlying market is identical.
What is an example of Liquidity Provider?
If a broker aggregates ten providers whose best bid is 1.08495 and best ask 1.08505, it may show clients 1.08485 / 1.08515 after applying a one-pip markup.
Trade with a regulated broker
Understanding the terminology is the cheap part. The expensive part is choosing a counterparty whose execution, financing and withdrawal behaviour match what the marketing implies. Every broker below has been reviewed with a funded live account, and each review states which legal entity and which regulator applies to the account you would actually open.
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