Hi:
I have been trading on and off both on demo and live for few months.
I have also tried several brokers and read a certain amount of articles.
Here I want to share a bit about my understanding on liquidity. (please correct me if I am wrong).
And I hope they are helpful to understand a bit more about the big picture.
In the end of this post, I also have 3 questions.
It would be helpful if anyone knows the answers.
---
The liquidity structure is:
Tier 1 liquidity providers (Banks/Large institutions like Cit, Deutsche, JPMorgan and etc) >
Liquidity pool (EBS / Currenex / FXCM pro(FXCM's self pool) / LMAX (also run as a broker) / FXall / Thomas Reuter etc.) >
Brokers (It can be a Prime Brokerage or a normal broker) >
Retailed traders
From tier-1 to liquidity pool, a bank might provide liquidity to different liquidity pools.
(with similar but different quotes and volume, and it is possible that many of them are overlapping).
From liquidity pool to brokers, the contract between them may effect the amount of liquidity the broker can access.
(ex: some might set up no-last look with that pool, some might not.)
From brokers to retailed traders, the liquidity should additionally include those traders with the same brokers.
(I am talking about ecn, and in a real ecn, everyone can provide liquidity even it is small amount.)
When it comes to liquidity providers, some brokers name liquidity pools (ex: FXOPEN), some names the tier-1 banks (ex: IC markets).
If the liquidity providers are named in liquidity pools, it is easier to estimate its liquidity depth.
BIS has reported some data/ numbers, and from that EBS has ~15% share of the global forex sport market, FXall has the similar size (~15%), Thomas Reuter has a bit less (~12%), Currenex has around 8%, and HotSpot has about 4%. These big 5 add up more than 50%, and the rest less than 50% are divided by 30 other smaller pools.
If the liquidity providers are named in Tier-1 banks, then it means little.
For example, CNX has the access to many big tier-1, but its market share is 8%.
*access to the liquidity of a bank doesn't necessarily mean it has access to all the liquidity of that bank.
*It might mean the access to some part (can be a big part or a small part) liquidity of the bank's total liquidity.
[Ask for confirmation] about this part, I am not 100% sure, but it makes sense to me. It would be helpful if anyone can comment on it.
During my research, I tried to ask the full list of liquidity pools, but brokers sometimes tell me many of the liquidity pools are not discloseable.
(Currenex / EBS / LMAX /Integral / SolidFX / HotSpot / FastMatch seems to be discloseable because they are listed on some brokers' webpage.)
ps,
IC markets claims they have access to more than 50 pools, but I didnt get the full list.
I only know they link to Currenex, Integral and Boston Prime.
ps,
LMAX claims to be an exchange, but there is a thread in DonnaForex saying this is debatable. According to my personal trading experience with them, it does show some sighs. I dont have solid evidences (my experience might be biased, if you like, please find more information and then share).
On the other hand, its liquidity pool depth seems not able to compete with some big pools.
As for its other aspects, I have no comment.
ps,
In order to get a deep liquidity, going for PB (such as LCG, Marex, Baxter, vCap, etc) seems to be an unavoidable way.
Some brokers (like FXOPEN and IC markets) may provide decent depth of liquidity, but it is difficult to estimate the actual numbers since they don't disclose many information.
*myfxbook provides the instant trading volume monitor, but it doesnt provide the total static number, it is still hard to tell.
--
After my thoughts sharing, here are my questions.
Q 1.
BIS report is good, but not complete. It only provides the market shares of few big liquidity pools.
Where can I find details about the market shares for smaller liquidity pools?
(by approaching liquidity pool straight? I doubt they will disclose it.)
Q 2.
Any comment on the "same" liquidity provider?
for example, bank A might provide liquidity to liquidity pool B and C.
So the sources are the same (from the same bank), but quotes/orders/amounts might be separated.
How do we know which quality is better, and which volume is higher?
Another way to ask (I am not sure if it is a totally different question, or they are pretty much the same, it depends on how banks distribute their liquidity)
Will liquidity itself overlap?
for example, bank A has an agreement to provide liquidity to liquidity pool B and C.
In this case, how does A distribute its liquidity to B and C?
does A divides its liquidity and then gives one part to B, another part to C.
OR, A provides its total liquidity to both B and C at the same time.
(the orders in that liquidity will be cleared when either B or C take it, depending on who is faster.)
Q 3.
I am also interested in interactivebrokers, they seems quite decent, but I havent got any reply from them (slow reply...).
Does anyone know what liquidity pool they link to?
--
Many thanks
Wjack
I have been trading on and off both on demo and live for few months.
I have also tried several brokers and read a certain amount of articles.
Here I want to share a bit about my understanding on liquidity. (please correct me if I am wrong).
And I hope they are helpful to understand a bit more about the big picture.
In the end of this post, I also have 3 questions.
It would be helpful if anyone knows the answers.
---
The liquidity structure is:
Tier 1 liquidity providers (Banks/Large institutions like Cit, Deutsche, JPMorgan and etc) >
Liquidity pool (EBS / Currenex / FXCM pro(FXCM's self pool) / LMAX (also run as a broker) / FXall / Thomas Reuter etc.) >
Brokers (It can be a Prime Brokerage or a normal broker) >
Retailed traders
From tier-1 to liquidity pool, a bank might provide liquidity to different liquidity pools.
(with similar but different quotes and volume, and it is possible that many of them are overlapping).
From liquidity pool to brokers, the contract between them may effect the amount of liquidity the broker can access.
(ex: some might set up no-last look with that pool, some might not.)
From brokers to retailed traders, the liquidity should additionally include those traders with the same brokers.
(I am talking about ecn, and in a real ecn, everyone can provide liquidity even it is small amount.)
When it comes to liquidity providers, some brokers name liquidity pools (ex: FXOPEN), some names the tier-1 banks (ex: IC markets).
If the liquidity providers are named in liquidity pools, it is easier to estimate its liquidity depth.
BIS has reported some data/ numbers, and from that EBS has ~15% share of the global forex sport market, FXall has the similar size (~15%), Thomas Reuter has a bit less (~12%), Currenex has around 8%, and HotSpot has about 4%. These big 5 add up more than 50%, and the rest less than 50% are divided by 30 other smaller pools.
If the liquidity providers are named in Tier-1 banks, then it means little.
For example, CNX has the access to many big tier-1, but its market share is 8%.
*access to the liquidity of a bank doesn't necessarily mean it has access to all the liquidity of that bank.
*It might mean the access to some part (can be a big part or a small part) liquidity of the bank's total liquidity.
[Ask for confirmation] about this part, I am not 100% sure, but it makes sense to me. It would be helpful if anyone can comment on it.
During my research, I tried to ask the full list of liquidity pools, but brokers sometimes tell me many of the liquidity pools are not discloseable.
(Currenex / EBS / LMAX /Integral / SolidFX / HotSpot / FastMatch seems to be discloseable because they are listed on some brokers' webpage.)
ps,
IC markets claims they have access to more than 50 pools, but I didnt get the full list.
I only know they link to Currenex, Integral and Boston Prime.
ps,
LMAX claims to be an exchange, but there is a thread in DonnaForex saying this is debatable. According to my personal trading experience with them, it does show some sighs. I dont have solid evidences (my experience might be biased, if you like, please find more information and then share).
On the other hand, its liquidity pool depth seems not able to compete with some big pools.
As for its other aspects, I have no comment.
ps,
In order to get a deep liquidity, going for PB (such as LCG, Marex, Baxter, vCap, etc) seems to be an unavoidable way.
Some brokers (like FXOPEN and IC markets) may provide decent depth of liquidity, but it is difficult to estimate the actual numbers since they don't disclose many information.
*myfxbook provides the instant trading volume monitor, but it doesnt provide the total static number, it is still hard to tell.
--
After my thoughts sharing, here are my questions.
Q 1.
BIS report is good, but not complete. It only provides the market shares of few big liquidity pools.
Where can I find details about the market shares for smaller liquidity pools?
(by approaching liquidity pool straight? I doubt they will disclose it.)
Q 2.
Any comment on the "same" liquidity provider?
for example, bank A might provide liquidity to liquidity pool B and C.
So the sources are the same (from the same bank), but quotes/orders/amounts might be separated.
How do we know which quality is better, and which volume is higher?
Another way to ask (I am not sure if it is a totally different question, or they are pretty much the same, it depends on how banks distribute their liquidity)
Will liquidity itself overlap?
for example, bank A has an agreement to provide liquidity to liquidity pool B and C.
In this case, how does A distribute its liquidity to B and C?
does A divides its liquidity and then gives one part to B, another part to C.
OR, A provides its total liquidity to both B and C at the same time.
(the orders in that liquidity will be cleared when either B or C take it, depending on who is faster.)
Q 3.
I am also interested in interactivebrokers, they seems quite decent, but I havent got any reply from them (slow reply...).
Does anyone know what liquidity pool they link to?
--
Many thanks
Wjack