In this articleWhat does an LP do?
A liquidity provider (LP) is a bank or trading firm that streams buy and sell prices to brokers and stands ready to trade at them. When your broker passes an order on, an LP is usually the firm that fills it.
Liquidity providers sit behind your broker. They quote the bid and ask prices you see on screen, and they take the other side of the orders your broker sends to the market.
You'll never log in to an LP, but you feel its work in every trade. The number of LPs your broker uses, and how your orders reach them, affect your spread, your fills and the slippage you get when prices move fast. This guide covers how LPs work, the main types and what they mean for your trading costs.
Quick Takeaways
- Your broker's prices usually come from one or more liquidity providers, not from the broker itself.
- More LPs competing for your order can mean tighter spreads, but your broker decides how much of that saving reaches you.
- Your broker's model (A-book, B-book or hybrid) decides who takes the other side of your trade.
- Liquidity can thin out fast around big news, which is when spreads widen and slippage is most likely.
What Does a Liquidity Provider Do?
A liquidity provider quotes a price to buy and a price to sell, and agrees to trade at those prices with the firms it serves.
That two-way quote keeps a market moving. Without it, your broker would have to wait for another client to take the opposite side of your trade.
A CFD liquidity provider does the same job for CFDs on indices, commodities and shares. LPs also help with price discovery, which is how a market settles on a fair price from many competing quotes. If you're new to the idea, our guide to liquidity in trading explains why some markets trade easily and others don't.
How Liquidity Providers Make Money
LPs earn mainly from the spread, the small gap between the price they buy at and the price they sell at. On one trade it's tiny, but across many trades it adds up.
The harder part is managing risk. When one client buys and another sells, the two orders cancel out and the LP keeps the spread with little risk. When they don't cancel out, the LP hedges the leftover position in the wider market, which means it opens an opposite trade elsewhere to offset the risk. Hedging costs money, which is one reason LP prices get wider when markets get jumpy.
How Your Order Reaches a Liquidity Provider
Your order goes from your platform to your broker and then, depending on your broker's model, on to one or more LPs. To a broker liquidity provider, your trade is just part of an order from your broker. It doesn't see your name.
Many brokers use a bridge, which is software that links the trading platform to LPs, and an aggregator that picks the best price from several quotes.
How fast and how cleanly that chain works is what order execution is really about.
Who they are
Types of Liquidity Providers
There are four main types, and most brokers use a mix of them.
Largest, most selective
Tier-1 Banks
Large global banks, often called tier 1 liquidity providers, that quote prices to each other in the interbank market. Brokers usually reach them through a prime broker, a big firm that lets smaller players trade using its bank relationships and credit.
Non-Bank LPs
Trading firms that quote prices with their own capital and pricing models. Many work as market makers.
Prime-of-Prime
Firms that give smaller brokers access to bank prices and credit they couldn't get on their own.
ECNs and Aggregators
Networks that pool quotes from many LPs and match orders. Our guide to ECN trading covers how they work.
Easiest for brokers to reach
Forex Liquidity Providers
In forex, LPs quote currency pairs around the clock, five days a week. Spreads on major pairs tend to be tightest when London and New York are both open, and wider in quiet hours. It's also the biggest market LPs serve: global FX trading averaged $9.6 trillion a day in April 2025, according to the Bank for International Settlements (BIS).
Institutional and Multi-Asset LPs
Some LPs serve only institutions, such as brokers, prop firms and funds. A multi-asset liquidity provider quotes several asset classes through one connection, for example forex, metals, energies and indices. That saves a broker from wiring up a separate LP for each market.
Side by side
Liquidity Provider vs Market Maker vs ECN
All three supply prices, but they sit in different places and earn money in different ways.
| Compare | Liquidity provider | Market maker broker | ECN |
|---|---|---|---|
| What it is | A bank or trading firm that quotes prices to brokers | A broker that sets its own prices for clients | A network that matches orders from many participants |
| Other side of your trade | The LP | The broker | Another participant or LP |
| How it earns | The gap between its bid and ask | The spread, plus the result of trades it keeps | A commission per trade |
| What you see | LP prices, often with a broker mark-up | Often fixed or marked-up spreads | Raw spreads plus commission |
Try it
A-Book, B-Book and Hybrid: Who Takes the Other Side?
With an A-book broker, an LP takes the other side of your trade. With a B-book broker, the broker does. A hybrid broker splits trades between the two.
A-book
Your broker passes your trade to an LP. It earns from a mark-up or commission, not from your loss.
B-book
Your broker keeps your trade in-house and takes the other side itself. Many regulated brokers work this way, but it creates a conflict of interest the broker has to manage.
Hybrid
Your broker keeps some trades and passes others on, often based on trade size or account history.
You'll often see A-book accounts sold as STP (straight-through processing) or NDD (no dealing desk). Both labels mean the broker says it sends your orders on to LPs without a dealing desk stepping in. They aren't used the same way by every broker, so the order execution policy tells you more than the account name.
How Liquidity Providers Affect Your Spread and Slippage
Your spread starts with the LP's price, and your broker then adds its own mark-up on top.
Here's an example. Say an LP quotes EUR/USD with a 0.1 pip spread and your broker adds 0.9 pips. A pip is the smallest standard price move, 0.0001 on EUR/USD, and it's worth about $10 on one standard lot. So each 1-lot trade costs you 1 pip, or $10, in spread. Make 20 trades a month and that's $200, and $180 of it is the broker's mark-up. Try your own numbers below.
An easy way to see this is to compare a broker's raw-spread account with its standard account on the same pair. On the raw account you pay the near-LP spread plus a fixed commission. On the standard account there's no commission, but the cost sits inside a wider spread. Add both parts together for the lots you actually trade each month. That total tells you more than the advertised spread.
Spread Cost Calculator
Type a number or use − and +.
Illustrative only. Assumes $10 per pip per standard lot (EUR/USD). Real costs also include commission, swap and slippage.
- Spread
- The gap between the buy and sell price: the LP's spread plus anything your broker adds. See spread in trading and bid and ask prices.
- Slippage
- A fill at a different price from the one you asked for, usually because the LP's price moved before your order arrived. See slippage and negative slippage.
- Market Depth
- How much volume sits at each price. More LPs usually means more depth, so larger orders fill with less slippage. See level 2 data and the order book.
Liquidity can disappear fast around big news. LPs widen their quotes or step back, spreads jump and stop orders can fill well away from your level. That cost comes on top of leverage risk, and most retail CFD accounts lose money.
Real-world examples
Examples: How an Institutional Liquidity Provider Works
An institutional liquidity provider quotes prices to other financial firms rather than to traders, trades with them directly and connects to their systems through bridge technology. Not every LP does this the same way, and the three spec sheets below show how different LPs set it up.
DrovixDrovix is an institutional liquidity provider. It streams prices to trading firms, not to individual traders.
Source: drovix.com
- Model
- Trades as principal on a bilateral, over-the-counter (OTC) basis, which means it is the direct counterparty to its clients.
- Technology
- Runs its own market-making and bridge technology, with connections over FIX 4.4.
- Markets
- A range of markets including forex, metals, energies and indices.
- Clients
- Brokers, prop firms and funds. No retail clients.
- Regulation
- Drovix (MU) Ltd holds an Investment Dealer licence from the Financial Services Commission (FSC) of Mauritius, licence GB21026813.
B2BROKERB2BROKER is a prime-of-prime provider. It pools prices from several larger liquidity sources and passes them on to brokers and other firms.
Source: b2broker.com
- Model
- Prime-of-prime: gives smaller firms access to prices from bigger banks and LPs through one account.
- Technology
- FIX, a standard messaging protocol for trading systems, plus MT4, MT5 and cTrader connections.
- Markets
- 11 asset classes, including forex, metals, indices, energies and crypto.
- Clients
- Brokers, prop trading firms, funds and other institutions.
- Regulation
- According to B2BROKER, its liquidity services are provided through B2BROKER PRIME INVESTMENT BANK LIMITED, authorised by the Labuan Financial Services Authority.
FX-EDGEFX-EDGE is a prime-of-prime liquidity provider that works only with business clients.
Source: fx-edge.com
- Model
- Prime-of-prime. For prop firms, it can mirror selected funded accounts into the live market through one hedge account, with no per-account fee.
- Technology
- Built on Match-Trader Pro, with FIX connectivity.
- Markets
- Forex and CFDs, more than 430 instruments.
- Clients
- Business clients only. No retail traders or private individuals.
- Regulation
- Its entities include FX-EDGE SC LTD, licensed by the Seychelles Financial Services Authority (FSA).
Shown as examples of how LPs are set up, not a recommendation. Laverlane doesn't rate liquidity providers. Details come from each company's own website, checked November 2026.
Questions Traders Often Ask a Broker About Liquidity
None of these has one right answer, but the answers say a lot about how a broker handles your orders.
- Is my account A-book, B-book or hybrid?Many brokers explain this in their order execution policy.
- How many LPs do you use, and what types?A named mix of banks and non-bank LPs is easier to judge than "tier-1 liquidity".
- Do you add a mark-up to the LP's price?On commission accounts the mark-up may be zero; on spread-only accounts it's usually built in.
- What happens to orders during news?Some brokers widen spreads, others requote (offer you a new, usually worse price) or slow fills.
- Which regulator licenses you?Check the company name and licence number on the regulator's own register, such as the FCA register, not just on the broker's website.
- Do you publish execution statistics?Average slippage and fill speed are more useful than marketing claims.
The order execution policy is usually the quickest place to find these answers. On paper, most CFD brokers act "as principal", which makes them the legal counterparty to your trade even when they pass the risk on to an LP. So look past that phrase to what comes next: whether the broker hedges client trades with liquidity providers, and whether that covers all trades or only some. If a broker won't answer these questions in writing, that tells you something too.
Liquidity Providers: What They Mean for Your Trading
Liquidity providers are where most of your broker's prices start. The number and type of LPs, your broker's model and any mark-up together decide what you pay in spread and slippage.
When you're ready to see how this plays out in practice, our CFD broker reviews compare costs and execution broker by broker.
Trading CFDs carries a real risk of losing money, often faster than you expect, so treat this as a starting point for your own research, not a recommendation.
FAQ
Can retail traders trade directly with a liquidity provider?
Usually not. Most LPs only deal with institutions such as brokers, banks and funds, and they ask for large minimum volumes and credit checks. Retail traders reach LP prices through a broker, which is why the broker's model and mark-up matter so much.
How many liquidity providers does a broker usually have?
It varies. A smaller broker may rely on one prime-of-prime provider, while a larger one may connect to several banks and non-bank LPs through an aggregator. More LPs can help, but the broker's mark-up still sets the price you pay.
Is a liquidity provider the same as a market maker?
Not quite. Many LPs work as market makers, quoting both sides with their own capital. But "market maker" is also used for retail brokers that take the other side of client trades, which is a different role from an LP that serves brokers.
Why does my spread widen at news times if my broker has several LPs?
Every LP faces the same risk at the same moment. Around big releases, LPs stretch their spreads or pull back until prices settle, so even an aggregator has fewer good prices to choose from. It's usually brief, but it's when slippage is most likely.
What does "tier-1 liquidity" mean in broker marketing?
It usually means the broker gets prices from large global banks, directly or through a prime broker. It describes where prices come from. It isn't a promise of tighter spreads or better fills, and a broker's published costs and execution data say more.
