Modern brokerage: how does a liquidity aggregator work?
Increasingly brokers The Quotix brokerage firm, Quotix, has a great deal of experience in this field, and it has a lot to do with the technical component of the execution of its orders. ForTrader.org magazine, Quotix CEO Evgeny Sorokin tells ForTrader.org what they are, how they differ, and whether they can be adjusted for slippage in a broker's favor.
- What is a liquidity aggregator, what are its main functions?
- Liquidity aggregators are systems that aggregate quotes from different sources into a single stream and route orders to liquidity providers. Brokers use aggregators to narrow spreadThe order is used to obtain the best possible order execution and to diversify the risks associated with liquidity providers.
Aggregators differ in many nuances of implementation, for example:
- The presence and quality of algorithms to filter "broken" quotes, protecting traders from false triggers trading systems;
- Methods of aggregation and representation of market depth, allowing traders to adequately assess the situation;
- Management of balance, positions and risks for each specific institutional client;
- Supported order types that provide additional options for trading and hedging strategies;
- Intelligent algorithms of order routing, as well as the possibility of their fine-tuning, necessary to reduce slippage;
- Variety and granularity of reports, as well as delimitation of user access rights;
- Ways to deliver aggregated liquidity to the consumer, necessary for a broker to connect his trading platforms to aggregation, etc;
- Possibility to create different offers with different liquidity pools, set of trading instruments, individual marcups (broker's markups), size of commissions, swaps;
- and so on.
- How does the process of position aggregation as well as liquidity provider selection and order routing take place?
- An order is routed according to a set of rules. The aggregator selects the best liquidity provider or a combination of them for each incoming order. An incoming order can be an overlap of an individual trader or, for example, a combined overlap volume of a group of client orders.
Liquidity providers are selected based on the prices they offer, available volume, external limitations on the size of each bid, etc. The main influence, of course, is the price. The aggregator knows how to select the best combinations of liquidity providers, send them trade requests, deal with rejections and "re-route" based on changed conditions.
The confirmation-overlap order makes more advanced risk management strategies possible.
- What is the main difference between Quotix products and similar software?
- Quotix is developing three directions:
- Liquidity aggregation is a product of Quotix Aggregator;
- MT4/MT5 dealing automation - Quotix Bridge;
- Broker Risk Management - Quotix Insight.
About Quotix Aggregator
The Quotix Aggregator product team thoroughly analyzes competitors' offers, carefully reviews every request for feature enhancements, evaluates implementation results, and regularly asks for customer feedback.
This allowed us to stand out in almost every aspect of aggregation mentioned above, paying sufficient attention to the design of algorithms, methods, possible usage scenarios, and execution quality in speed, reliability, and usability.
A few more examples of how the Quotix Aggregator works effectively:
- Adaptive price filters that cull sharp price jumps ("spikes"), but react quickly to the correct significant difference between subsequent quotations and previous ones;
- "Smart" routing of orders, which takes into account different parameters of a particular quote and its suppliers. This reduces the probability of slippage;
- An unlimited amount of incoming liquidity flows and market data. Broker increases market depth and narrows spreads;
- Unlimited number of outgoing consumer connections with customization of key trading and quotation parameters. The broker flexibly forms offer conditions for its clients;
- Colocation with Tier-1 liquidity providers in Equinix's London data center;
- Deploying and configuring a new aggregator in less than a day.
About Quotix Bridge
Quotix Bridge is a system that connects the MetaTrader server with an aggregator and automates broker activities. Quotix Bridge takes care of routine operations of confirming orders to the client and overlapping them. The broker has a choice between risk-free operations (overlap, then confirmation) and speeding up the response for the trader (confirmation, then overlap).
And while competitors also offer bridge and auto-dealer solutions, Quotix products are different. Examples of "advanced functionality" include:
- Symmetrical market execution, including both positive and negative slippage, depending on the state of the market at the time of execution;
- Execution of high-volume orders from InstantExecution in the MarketExecution style, which allows you to transfer the risk to the liquidity provider in agency model;
- Identifying arbitrators.
In addition,
- Quotix Bridge configuration is accessible through a user interface that requires no special IT knowledge, and changes are applied in real time without a component restart;
- The execution and quotation parameters are grouped into profiles, between which the dealer switches depending on the trading activity and market situation;
- Quotix Bridge records the details of what happens in more detail than MT Manager, and presents this data in the form of convenient transaction logs and generic reports. This makes daily analysis and reporting easier.
About Quotix Insight
Quotix Insight is a risk management product. This is a set of strategies that allows you to dynamically decide whether to put this order on the market or not (netting within the company). At the same time, the execution for the trader does not change, these models only change the brokerage hedging strategies. Upon request, Quotix analysts will help you select the optimal overlapping strategies. The analysis and optimization are based on specific MT4 servers, i.e. the results are personalized for the broker.
- What is the advantage of these technologies? Will the quality of services provided to traders become higher?
- Many dealing centers manage risk manually and are therefore susceptible to human error. Quotix products allow you to get rid of dealers' interference in execution and overlap. This means dealers can focus on more important things and take service to the next level.
In addition, symmetric execution and requoting functionality can improve services for traders (for example, positive slippage on execution of limit orders or take profits, or price improvement on instant orders).
- On conflicts of interest when setting up an aggregator. Can a company set up an aggregator to use slippage to its advantage?
- None of the Quotix products have the functionality of a forced slips.
Most often slippage, positive or negative, is the result of market execution. It occurs in two cases:
- If the order size is larger than the "top" liquidity layer. Then the order is split into parts and sent to several liquidity providers, and the trader receives VWAP-price (weighted average), which is slightly worse than TOB-price;
- If the liquidity provider sends a refusal of execution. Then the aggregator "re-routes" the order and redirects it to other liquidity providers. Since there was a delay in information exchange with the first liquidity provider, the market picture may have changed, and slippage can be either positive or negative;
There are also natural network delays between the client terminal, the MT-server, the aggregator and liquidity providers. Therefore, in some cases, especially in highly volatile times, the execution price may differ from what was displayed in the MT terminal. This difference may be positive or negative.
Of course, this leaves room for suspicion and disputes between trader and broker. To mitigate this, Quotix promotes the idea of symmetric execution, so that cases of positive requoting or slippage in favor of the trader show that price changes are either market or purely technical in nature.
In this interview we tried to reveal to the readers the principles of the liquidity aggregator, as well as the modern possibilities of the broker and the general tendencies of development of the field and the relationship between the trader and the company, which, we hope, will become commonplace in the near future.
In short, the liquidity aggregator is a great way to reduce losses by getting a more accurate forecast.