The foreign exchange market remains fragmented and not centralized. While the collective daily volume in the spot, forward and exchange forex market is around 3 trillion, the lack of transparent price and liquidity discovery among numerous institutional forex trading platforms remains a primary concern due to the fragmented nature of the Forex market. Given the growing interest in online forex trading, new and improved trading venues are emerging.
Due to the decentralized, segmented and OTC nature of the Forex market, liquidity has always been dispersed. However, in the last ten years the number of sources from which liquidity can be drawn has increased enormously. Forex liquidity aggregators are tools that allow market participants to see all the various sources of liquidity on one screen. Below are some of the advantages of Forex aggregators:
Virtual currency exchange
A liquidity aggregator acts as a centralized trading portal by accepting and normalizing various data sources, feeding that data into algorithmic engines, and taking orders and sending them to market. By presenting liquidity in a single, consolidated order book, aggregators act as a ‘virtual currency exchange’ for buyer traders. Traders can get a complete picture of available liquidity in a single trading environment, allowing them maximum control over their order flow by easily sorting, analyzing and making profitable decisions.
Limit transaction costs
By accessing multiple sources of liquidity, Forex aggregators reunite the market for traders on the buying side. In addition to reducing transaction costs and time spent seeking liquidity, they also limit the potential risks involved by placing all execution orders on a single order ticket. The cost of aggregation services will be offset as merchants spend less time searching for the best price.
Increased business efficiency
By employing aggregators, merchants will no longer need to subscribe to multiple portals on their desktops. By adding functionality, pricing, and liquidity in one portal, merchants can save on the cost of staff and infrastructure that they would otherwise have spent managing multiple portal connections under the traditional execution system. A major challenge faced by merchants using the traditional execution process is “last-look layout.” Banking portals have a waiting period of several hundred milliseconds to several seconds before a deal is executed. The latter can have a huge impact on profitability, especially for algorithmic trading system. However, by adding multiple sources of liquidity, last-look provisions can be minimized, thus increasing business efficiency.
Best price discovery
Forex aggregators internally match trade orders between all buyer-side traders and liquidity providers, providing better price discovery and increased liquidity. This further improves response time and order confirmations for users.
Maintain anonymity
Buying companies prefer to remain anonymous while trading the Forex market, as they do not prefer to disclose their trading strategies. Currency aggregators allow you to run daily currency flows without revealing your position or identity.
Intelligent order routing
Forex aggregators also enable ‘intelligent order routing’, in which buying companies can continuously look at all sources of liquidity to determine where the best market opportunities lie. After an order is executed, the aggregator automatically decides where to route, how much of the total amount to send to which location, and which orders to send. Additionally, users can refer to a single screen instead of referring to multiple single or multi-screen portals at the same time, saving on the cost of employing systems for each trading venue. In addition to delivering efficiency gains, this technology also enables market players to retain more business value. Therefore, Forex players are providing increasing services that provide a single point of access to market liquidity, combined with a common trading history.