If you want to start a cryptocurrency brokerage firm or are considering adding cryptocurrencies to your tradable assets, you’ll need cryptocurrency liquidity. In this article, we’ll explain how cryptocurrency liquidity works and how you should choose the best cryptocurrency liquidity provider for your business.
Definition of Cryptocurrency Liquidity
Nearly all brokers agree that crypto liquidity providers —or, as some prefer to call them, “market makers”—are a vital component of any broker’s business operations. Regardless of the type of tradable instruments you offer your clients—such as forex, CFDs, futures, commodities, and so on—it is essential to ensure reliable and stable liquidity for them.
Generally speaking, the primary purpose of crypto liquidity is to enable traders to easily buy and sell assets. In the context of cryptocurrencies, liquidity refers to the ease with which tokens can be converted into fiat currencies (such as the U.S. dollar or the euro) or other cryptocurrencies.
In short, when liquidity is low, market volatility is high, which can cause asset prices to spike. Conversely, when liquidity is high, the market is stable, and price fluctuations are minimal.
When market liquidity is high, trading volume increases, making it easier for traders to buy and sell cryptocurrencies, which in turn allows for faster order execution. Since the cryptocurrency market is one of the busiest markets today, high liquidity means traders can enter or exit positions at any time.
Crypto Liquidity High Benefits
High market liquidity is the ideal scenario for all market participants. For brokers and traders, this translates to better prices, as the number and size of buyers and sellers create a balanced price for the asset—a situation welcomed by all participants.
At the same time, high market liquidity ensures price stability, preventing significant fluctuations in the short term. When prices are sufficiently stable, the market can handle a large volume of orders without experiencing noticeable spikes or volatility. Under these conditions, brokers can provide fast and smooth order execution for more clients.
Another significant advantage of high liquidity is that it allows for more accurate chart analysis of the market, since technical analysis tools are more precise in stable markets.
Factors Driving Crypto Liquidity What are they ?
The following factors determine the level of liquidity for any cryptocurrency:
- Trading Volume
A quick glance at CoinMarketCap or any other token ranking website reveals the daily trading volume for each token on the market. Trading volume reflects the number of people buying and selling coins, as well as the size of their positions, and is a key factor in determining a token’s level of liquidity.
With the boom in cryptocurrency exchanges over the past few years, more and more people can easily trade cryptocurrencies. The increase in token trading volume—particularly the growth in trading volume for major cryptocurrencies such as Bitcoin and Ethereum—has helped improve their liquidity.
- Market Acceptance
Another key factor driving cryptocurrency liquidity is acceptance. As cryptocurrencies become increasingly accepted on more and more platforms, their liquidity grows accordingly. Therefore, for Bitcoin and other tokens to become a common form of payment, they need to gain recognition from more merchants worldwide.
- Regulatory Oversight
Regulation of cryptocurrencies varies across different jurisdictions, as each country takes a different stance on them—ranging from near-total acceptance to a semi-open approach to outright prohibition.
Regardless of the legal landscape, cryptocurrencies are growing rapidly, forcing authorities to take a clear stance, provide property protection for consumers, and establish fair tax schemes. As more and more countries join this trend, the acceptance of cryptocurrencies, trading volumes, and crypto liquidity will continue to rise.
How to Choose the Best Crypto Liquidity Provider ?
Crypto brokers can evaluate and select the liquidity provider that best suits their business needs based on the following criteria:
- Tools and Services
The first thing you need to consider is what kinds of tools and services you want to offer traders. Whenever you’re choosing a liquidity provider, the best option is always to select one that offers multi-asset liquidity and provides access to historical data via the FIX protocol.You should check whether the provider can convert the tokens you want into fiat currency and which types of cryptocurrencies it supports.
- Liquidity Pool Depth
The number of orders at each price level for a specific currency determines its “market depth”—a key factor to consider when selecting a liquidity provider. The market depth your provider offers for any given asset ultimately reflects its stability as a provider.
- Execution Speed
A good cryptocurrency liquidity provider should be able to execute trades quickly with minimal repricing and slippage, which is especially important during news events that have a significant impact.
- Pricing
Your liquidity provider’s quote should offer competitive spreads, low commissions, and low swaps without disadvantaging either party.
- Quotation
A provider’s price feed must always be stable and reliable, and prices must be aggregated in real time from all relevant exchanges and foreign exchange markets, enabling brokers to execute orders quickly and avoid delays and cancellations. If price data cannot be delivered in real time within a few seconds, the resulting price discrepancies could be significant.
- Technology
Advanced encrypted liquidity providers must be able to offer FIX protocol connections and other APIs, as well as integrations with MT4 and other trading platforms.
Leverate—YourPreferredCryptocurrency Liquidity Provider
As cryptocurrency trading becomes increasingly popular, more and more brokers are looking for a trustworthy and reputable cryptocurrency liquidity provider. With over 12 years of market experience, Leverate is a leading cryptocurrency liquidity provider that offers the technical infrastructure necessary for forex brokers to provide cryptocurrency services.
LXCapital—Leverate’s cryptocurrency liquidity solution—uses state-of-the-art technology to provide brokers with liquidity tailored to their specific needs. No matter which currencies you wish to offer your traders, with LXCapital, you can provide them with the best prices, minimal slippage, and zero gaps at any given moment.
LXCapital aggregates liquidity from major cryptocurrency exchanges and relies on a powerful engine to determine the most accurate prices for each currency in a matter of seconds, while also processing large volumes of orders. This enables Leverate to offer low spreads, low commissions, high execution speeds, and zero order rejections.
Leverate’s crypto liquidity solution enables integration between MT4 and Leverate’s proprietary Sirix trading platform, which is available on desktop, web, and mobile devices. Integrating with Leverate’s crypto liquidity solution is very straightforward; our professional developers can handle all technical aspects and provide training and ongoing support services.
We fully understand that every broker has different needs and expectations when it comes to products. That’s why we offer customized solutions tailored to your specific requirements, designed to meet all your product needs. No matter what products and services you wish to offer your traders, our solutions can help you bring them to life.
As Maoz Tenenbaum, our Vice President of Sales, said: “When choosing a crypto liquidity provider, the most important thing is to look for a reliable and reputable technology provider that has deep industry connections and is committed to the success of its partners.“We are always happy to help both new and established brokers incorporate cryptocurrency into their product offerings—it’s a mutually beneficial, win-win situation.”
