The following commentary comes from Michael Markarian, Managing Partner at Core Liquidity Markets PTY LTD.
One of the unique facets of the Forex market is the fact that it is decentralized and the need for liquidity providers. This means that Forex brokers need to connect trading platforms to these liquidity providers which is not as simple as it may sound. The need for bridge providers came about when many Forex brokers were looking to implement MetaTrader 4. When MetaTrader 4 was designed it was done so as a stand-alone broker platform with the popular front end and a risk management component. It was not however designed to interface with banks or liquidity providers as it is not FIX compliant. Bridge providers like One Zero and Boston Technologies created an interface that allowed the world’s most popular trading platform to connect to the interbank.
More and more questions are being asked if the need for these bridge providers is still there. Most recently a series of outages by one of the largest bridge providers One Zero has been most noted as they were considered to be one of the most reliable. Downtime and outages occur, but with this type of frequency this can lead to exodus on the part of Forex brokers. Another issue that Forex brokers are now looking at is the added cost of the bridge provider. Most of these bridge providers charge a transaction fee which eliminates the competitive advantage of MetaTrader 4 in the first place. For Forex brokers that are in an ever increasing competitive environment this gives another reason to take a look at the need for a bridge provider.
One of the biggest challenges that face Forex brokers are establishing credit lines and the ability to get a Prime Brokerage relationship. Banks have been increasing requirements for Forex brokers in a move to mitigate risk and this is yet another reason why the need for a liquidity bridge is lessened. The biggest question is will it be a technology solution that replaces the need for a bridge providers or will this drive more brokers to using a prime of prime solution to piggy back off of their existing infrastructure.