When it comes to trading, there is little to no tolerance for errors, delays, or other issues. Every market player faces an immense amount of pressure daily. However, brokerages that process large volumes have an extra layer of responsibility that comes with their size.
Large volumes require enterprise solutions for every aspect of the business, from the team and internal processes to technology. At Tools for Brokers, we believe that the software can make or break one’s business, and the liquidity bridge plays a vital role in supporting and enhancing all operations.
Today, we will talk about the role of the liquidity bridge in large volume trading. We will also give a few examples of what functionality and setup can help large brokerages succeed and grow.
What’s behind the scenes matters
In talks about liquidity bridges in particular, or the technology in general, we often go straight to the shiny functionality that users can see and touch.
Yet, it is equally important what kind of foundation your solutions have. Just because the software demonstrates excellent performance with 1000 traders and XYZ volumes doesn’t necessarily mean that it will maintain such performance when the trader count rises to 10 000 users.
How can you ensure that the technology you entrust your business with will not fail you in the long run? Consider its architecture. As more traders connect and the volume grows, the workload on the bridge will increase too. A solution to the workload issue is a scalable and stable architecture.
Trade Processor, a liquidity bridge by TFB, is scalable because the solutions’ components are installed separately. That means if one of the hardware boxes freezes or fails, the rest is not affected, and the trading will not be interrupted. It also means that when the broker expands its services or experiences growth, they will not be held back by their environment and have to urgently replace the bridge with an alternative.
But it’s not just the architecture that supports the broker in the bridge. Other things like built-in backup can play a crucial role. For example, in Trade Processor, a Backup LP functionality instantly switches to an alternative Liquidity Provider if something happens to the primary LP, for example, they stop responding.
Transparency and flexibility are important
Transparency of inner processes and the ability to influence them are critical for all brokerages, especially those with large volumes. It’s vital to have access to and knowledge of what happens inside the bridge and be able to adjust the settings and configuration.
In addition to control, transparency and access allow for quick updates and changes, meaning that brokers don’t miss out on opportunities because they have to wait for approvals or not be able to execute their ideas for one reason or another.
Trade Processor has no central panel where decisions are made, which means that each bridge installation is unique and can be customised based on the broker’s needs. For example, one can set the routing rules or create client groups however they prefer.
Another aspect of flexibility is access to third-party integrations. Tools for Brokers has built an ecosystem of solutions around the bridge covering all broker needs. However, we also offer FIX APIs that allow brokers to integrate any solution they’d like. As your brokerage grows and expands, it is an added risk to work with solutions that limit your options.
Execution as a growth instrument
Execution is one of the primary features of any liquidity bridge. And while it might seem that it’s the same with any bridge, that is far from the truth.
Execution comes in many shapes and forms, and the key is to find the bridge that provides you with advanced options. Here is how Trade Processor works:
● Access to private aggregation pools. A wide variety of trusted LPs partner with TFB, so brokers have a choice and can create their private pools that will include the providers they’ve selected personally.
● Multiple aggregation modes for best pricing. Best pricing is one of the key goals of any broker, and the right aggregation can help achieve those goals more efficiently. Because every order is different, an approach that worked for someone might not be the best for others. Trade Processor supports six different aggregation types, each targeting a unique scenario and helping the broker get the best pricing possible.
● Continuous execution option for large orders. Large orders tend to wipe out all market liquidity and execute with higher pricing. That’s not an ideal situation, but luckily continuous execution can help with that. It works as follows: the broker sets up the maximum size of orders, and anything above is split into smaller ones and executed over time. Once all pieces of the order are executed, they are automatically put back together, and the volume-weighted average price is calculated. This process takes more time but ensures a much better end price for the traders.
● Volume Consolidation to make the end of the day easier. Consolidating orders at the end of each day is daunting - it takes lots of time, and there is a high risk of making a mistake.
More than a liquidity bridge: a supportive ecosystem
Another factor that defines the strength of the liquidity bridge is its ecosystem. We’ve already touched on the third-party integrations, but it’s important to work with a bridge that can offer supportive solutions that won’t require much time to implement.
Native solutions have the benefit of 100% compatibility and quick rollout. So, if tomorrow the brokerage decides that they want to offer a PAMM solution for their clients, they won’t have to spend weeks running tests and playing with configuration.
Trade Processor’s functionality is currently expanded and supported by:
● TFB PAMM for custom money management
● Business Intelligence for data reporting
● TFB Plugins that target specific individual needs
In addition to the ecosystem, Trade Processor itself offers tools beyond bridging within the system. The monitoring page of the bridge gives a real-time glance at the system, and the economic calendar shows significant events happening globally that can affect trading patterns.
This article was written by Alexey Kutsenko, CEO at Tools for Brokers.
