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What Really Counts in the Quest for Great Liquidity?

15 Jan 2021, 03:10

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Tim Wilbraham, Quant Trading Manager at CMC Markets, spoke with e-Forex magazine to outline recent evolutions in the currency trading market and offering insight as to how you can assess the likely quality of any counterparty’s service. 

Exceptional levels of volatility through much of 2020 saw the technology used to facilitate trading – and the accompanying robust claims made by counterparties – tested to the extreme. It may have been unsurprising that some failed to live up to expectations, but one stand-out point was seen as being the role played by a select number of tech-focused providers in maintaining an orderly market.

This helped paint a picture of what needs to be understood about a counterparty, how it functions and in turn, its likely reliability. Noting that it’s not just about the technology, attention should also be paid to upstream relationships, the potential to internalise flow and how close any liquidity provider sits to the true supply. These factors all play a crucial role in not only ensuring a degree of price stability, but also in minimising market impact – an important point which can often be overlooked.

Whilst technology plays a significant role in quality of service, ultimately it’s about more than that. Upstream relationships and connectivity are also critical when it comes to deciding if a provider can consistently deliver against its stated KPIs. Without the unique pricing, stability of service, trade execution with minimal impact and the ability to consistently serve up liquidity with meaningful depth the risk of counterparties failing to deliver is real.


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