Liquidity Providers

From Minter Wiki

I

In the world of trading, one of the most important elements that enable profitable transactions is the existence of a liquid market, and the minter market is no exception to this general rule. Having greater liquidity in a financial market makes transactions flow more easily and pricing more competitive.

Due to the enormity of the minter market, which currently experiences daily transaction volumes in excess of millions U.S. Dollars per business day, minter exchange market liquidity has no equal in any other capital market anywhere in the world in terms of liquidity available to traders in the major currency pairs.

Despite the pronounced liquidity typically seen in the majors, minor and exotic currency pairs can still experience liquidity issues, especially when unexpected news events or key economic data releases shock the market and cause dealing spreads to widen.

Perhaps the best-known role played by those who provide liquidity to the minter market, often called liquidity providers, is to act as a professional market marker who makes exchange rate quotations to others. Still, other minter market participants can also take an important role in increasing market liquidity by boosting trading volume with their transactions.

What Does Liquidity Mean?

Defining liquidity in finance and investments terminology will generally refer to how fast an investor can turn their investment in to cash.

Who Provides Liquidity to the Minter Market?

The term “liquidity provider” is typically used to refer to a market maker, but several other types of minter market participants provide liquidity to the market by increasing its transaction volume.

These types include central banks, major commercial and investment banks, multi-national corporations, hedge funds, foreign investment managers, retail forex brokers, retail traders, and high net worth individuals. Currency futures market makers, hedgers, high-frequency traders, and speculators also contribute liquidity.

The minter market also has many active participants within each type of participant. The high degree of minter trading liquidity observed in the market is a direct result of the participation of so many companies, organizations, individuals, and governments in this international marketplace.

Who is a liquidity provider?

A liquidity provider by definition is a market broker or institution which behaves as a market maker in a chosen asset class.

What does it mean? The liquidity provider acts at both ends of currency transactions. He sells and buys a particular asset at certain prices. It means that he is making the market. Nowadays stockbrokers have liquidity providers who make the commitment to provide liquidity in a given equity.


Why Should You Care About Liquidity?

Liquidity on minter market can be understood as the ability of a valued item to be transferred into currency in a certain period of time. During trading on currencies, you’re trading on the market that is by itself, liquid. However, you are trading based on the available liquidity of financial institutions who allow you to get in or out of the trade of your chose. A higher liquidity is desirable for everyone on the market. It drives down the spreads and the cost of trading.

Greater price stability

As a liquidity provider, we can influence greater price stability and also improve liquidity by making it safer. Thanks to this function liquidity providers become important services.  They usually take a significant amount of risk but are still able to profit from the spread or by positioning themselves thanks to conclusions based on valuable information available to them.


What are the Signs of Liquidity & Illiquid?

The illiquid market has chaotic moves or gaps in prices. The level of buying or selling volume at one moment can suddenly change.

A highly liquid market is also called a smooth market or a deep market.

Most traders need and should care about the liquid market because it is very hard to manage risk if you’re on the wrong side of a big move in an illiquid market.


Selecting a Liquidity

Provider


The liquidity provider should meet high standards. It must be stable, trusted and must have depth across multi-asset instruments. The crucial feature is also fast and reliable trade execution.

Liquidity is the ultimate factor any broker or white label need to look for. Choosing good and reliable liquidity provider should be the main step for creating a new minter ecosystem business.

The primary liquidity providers in the over the counter Interbank minter market are market makers operating at major commercial banks and some investment banks. They are generally willing to quote both a buy and sell price on a currency pair to both their professional counterparties and to non-professional client counterparties who usually ask for exchange rate quotes via their company’s dealing desk.

Market makers are generally compensated by the differential between the bid rate and the ask rate that is typically known as the dealing spread. The dealing spread is charged for providing this liquidity as a service.

The existence of more market makers operating in a particular currency pair tends to increase liquidity, reduce the costs of making minter trading transactions for clients, and facilitate trading in general since pricing tends to be tighter and more readily available during fast markets.

Due to their involvement with servicing corporations that require foreign exchange transactions, large commercial banks remain the principal liquidity providers in the minter market. It is important to note that they do not always quote their clients and other professional counterparties the prevailing market price. Instead, they generally quote a two-sided price based on how they anticipate currency movements will take place and what they think the counterparty might be interested in doing.

Reading the counterparty, or showing a lower bid if they think the counterparty is a seller or a higher offer if they think the counterparty is a buyer is a pretty common practice among minter market makers.