How Liquidity Drives Tickmill’s Industry-Leading Low Spreads

Tickmill’s dedication to offering some of the best trading conditions in the market is no secret. At any time, regardless of changing markets. This dedication has earned it various accolades and recognition, including being named the ‘Number One Broker for Commissions and Fees’ by ForexBrokers.com for three consecutive years.To achieve such results, Tickmill invests a large number of resources every year. Offering superb conditions comes with many challenges and factors to consider. We spoke to Johnny, Head of Liquidity at Tickmill, to better understand how everything works and what exactly Tickmill does to maintain such competitive pricing.The Importance of Liquidity in Trading  Johnny, the first factor that plays an important role in pricing is liquidity. What is liquidity exactly, and why is liquidity important? Liquidity is the main element that makes any market efficient and competitive. It’s the extent to which a product or asset can be bought or sold at a stable price that reflects its real value. In simple terms, it comes down to the fact that if there are more buyers and sellers in the market, then the liquidity will be deeper.For a market to be highly liquid, there must be a substantial number of buyers and sellers. In FX, liquidity is measured by the Depth of Market (DOM), the trading volume, and the Bid/Ask spread. The quality of liquidity correlates directly to the quality of the trading experience.That’s why liquidity is important in Forex and in other markets: it determines how competitive the pricing of the asset can eventually be. The more liquid an asset is, the tighter and more readily available the price will be.Who are the Primary Liquidity Providers (LPs) in FX and what are their roles?The primary LPs in the FX market are the large investment banks and financial institutions. They are the ones willing to quote a buy and sell price on an instrument to their counterparties. They often make their money by taking the counterposition in the trade rather than relying on the spread.In recent years, Non-Bank LPs have started playing a vital role in providing and improving access to liquidity in OTC FX products. At Tickmill, we carefully select our LPs and constantly monitor their performance based on various metrics.What are the metrics you monitor?Response Time / LatencyExecution SpeedSpreadFill RatioSlippageMarket ImpactI would like to understand a bit more about Tickmill’s trading counterparties and the composition of its liquidity network. Can you elaborate? We are connected to a large number of liquidity providers, which include Tier 1 banks, Non-Bank market makers, Prime of Primes (PoP) and ECN Trading Venues.Tier1 Banks include Barclays, JPMorgan, UBS, Deutsche Bank, Goldman Sachs, HSBC, Nomura.Non-Bank LPs include XTX Markets, HCTech, Citadel Securities, Jump Trading, Flow Traders, Tower Research.Prime/Pops: Saxo Bank, ISPrime, CMC, ADMIS, Finalto.ECN Trading Venues: 360TGTX, LMAX.Do you aggregate liquidity between different LPs?In short, yes. To be able to get the tightest spreads, we aggregate pricing from various LPs and transmit the best bid and ask from the aggregated pool to our clients. This will also ensure that, if the connection with any single LP drops, there is a constant backup guaranteeing that the clients’ trading experience is not interrupted.How Tickmill offers and maintains some of the lowest spreads in the industryTime and again, Tickmill has received awards and recognition for its very competitive pricing. Johnny explains what exactly sets Tickmill apart and allows it to consistently maintain industry-leading low spreads.What makes Tickmill’s spreads some of the lowest in the market? As one of the largest brokers in the world, we have spent years building a deep liquidity network and investing in our pricing technology. We capitalise on our established institutional relationships across the globe to provide deep liquidity pools with low-latency connectivity and extra-tight pricing.Our advanced order routing capabilities ensure client fulfillment even during the most volatile market fluctuations. Our highly developed liquidity networks provide intuitive, customizable pricing to facilitate superior trade transactions and reduce each client’s cost of execution. This also allows us to cater to all client types and all different kinds of trading strategies.Can you tell us more about Tickmill’s infrastructure and pricing technology? Our servers are located at Equinix LD4 (London, United Kingdom) and EquinixNY4 (New York, United States), which are the world’s leading sites for FX low-latency connectivity. To ensure ultra-low latency connectivity, we have established cross-connects with our liquidity providers combined with state-of-the-art price aggregation and execution technology.There are so many brokers out there advertising low spreads, but they don’t seem to keep their promise. How does Tickmill ensure that the current tight pricing will not deteriorate over time?Part of our duty in the brokerage department is to monitor industry spreads to see where we stand and be able to offer that genuine trading edge to our clients. We tend to see lots of brokers offering tight spreads for a brief period of time, only to see that pricing degrade. This happens because very few brokers have the technology, tools, and experience to be able to manage their flow and relationships with their LPs. Not all trading flow is of the same quality, and if that is not actively and correctly managed, it eventually leads to problems between the broker and the LP, which by default negatively affect the spread.At Tickmill, we heavily rely on technology and experience to manage the large amount of business we face daily. We maintain very strong relationships with our LPs based on trust and transparency.We can group flow profiles in a meaningful manner based on several metrics that are closely monitored. We ensure that the flow sent to each LP within that pool is executed correctly upstream on the LP side.What costs should traders be aware of when choosing a broker? Check out the second part of Johnny’s interview here and learn all about it!