The following is a guest editorial courtesy of Michael Nichols, CEO of Hantec Prime.

Liquidity providers (LPs) are far more than a price feed: they are a strategic extension of a broker’s execution, risk management, and client-service capability. Choosing and working with the right LP affects spreads, slippage, hedging costs, and client retention and P&L.

At Hantec Prime, we lay absolute emphasis on a strong relationship with liquidity providers. From my experience in the fintech and liquidity space, some key facilitators to a strong partnership simply cannot be ignored.

This short guide explains the fundamentals of a strong LP relationship, why experience and transparency matter, practical hedging considerations, and an actionable checklist you can apply immediately.

An LP supplies depth of market, execution quality, and the ability to absorb or pass on flow. I have seen instances of poor LP selection or weak relationships and their direct impact on wider effective spreads, frequent re-quotes, higher slippage, and slower fixes during market events — all of which are catastrophic in this space.

It’s a critical decision to select the right LP for a strong market presence, but it all begins with ensuring the order of its foundation.

Fundamentals of a good liquidity provider

When evaluating or benchmarking an LP, look beyond headline spreads. The following operational and commercial fundamentals matter most:

Spread and order-book quality. Consistent, tight spreads are valuable only if they come with depth at those prices. Evaluate sample ticks, order-book snapshots, and real-world slippage across the instruments your client’s trade.

Instrument coverage. Ensure the LP covers the instruments your client base demands — major and minor FX pairs, CFDs, metals, or futures. Gaps in instrument coverage force inefficient hedging and affect product offering.

Execution performance and response times. Measure latency, fill rates, partial fills, and re-quote behaviour. Fast, predictable execution is essential for real-time hedging and client satisfaction.

Communication & service model. A resolute account team, clear escalation paths and agreed SLAs (including response-time commitments) reduce operational risk. Where appropriate, 24-hour support prevents service gaps that cascade into pricing or execution issues.

Connectivity & reporting. Reliable FIX/API support, reconciliation tools and transparent reporting enable timely investigations and performance audits.

Experience matters

Experienced LP teams understand market microstructure, event-driven liquidity shifts and the patterns of abusive or “toxic” flow. That institutional knowledge enables them to:

• Identify and advise on harmful flow types before they erode profit.
• Proactively suggest limits, filters, or routing changes to reduce exposure.
• Coordinate during high-volatility events to preserve execution quality.

An experienced LP acts as an early warning system and a practical partner in managing adverse selection and protecting profitability of both parties.

Transparency and its multiplier effect

Transparency is bilateral and often overlooked. When a broker openly shares client mix, average trade size, peak flow profiles and hedging intent, LPs can price and size exposure more efficiently. The practical benefits include:

• Tailored pricing and improved conditions for agreed-upon flow.
• Reduced friction at settlement and fewer disputes.
• Possibility of bespoke commercial models (e.g., revenue-share or volume rebates) that can materially offset execution costs.

Honesty about the nature of your book allows an LP to say clearly what they can — and cannot — accept. That clarity, in turn, leads to predictable service and better economics for both sides.

Hedging, limits, and collaborative risk management

Both brokers and LPs operate with NOPs and risk limits. When flow exceeds those limits, the LP will either internalise, pass the risk downstream, or decline — each path changes costs and execution. Practical steps to manage this:

• Agree explicit limits and escalation rules up-front and review them periodically.
• Use multiple LPs to diversify capacity and avoid single-point congestion.
• Consider dynamic or partial hedging strategies informed by client segmentation and trade lifecycle.
• Provide realistic balance-sheet transparency to your LP so they can offer appropriate credit, capacity, or revenue-share structures.

A clear hedging dialogue avoids surprises and prevents short-term spikes from becoming long-term cost drivers.

The liquidity provider relationship checklist

Use this short checklist to evaluate a relationship or to structure a new one:

• Measure: average spread, fill rate, re-quote rate, latency, and depth at market size.
• Contract: include SLAs, reporting cadence, termination terms, and dispute processes.
• Service: confirm dedicated team, escalation path, and hours of coverage.
• Testing: stress-test execution around major economic events and low-liquidity windows.
• Governance: schedule regular business reviews and joint stress tests.
• Diversification: maintain at least one alternative LP for capacity and resilience.
• Commercial: negotiate performance-linked terms or revenue-share where feasible.

As the CEO of Hantec Prime, my mission stays affirmed in delivering institutional-grade liquidity after disciplined selection and ongoing, transparent collaboration. This ensures the right evaluation of execution quality and operational capability, and then builds an honest, experienced partnership with clear limits and agreed SLAs.

With ultra-low latency connectivity and competitive pricing for 1,850+ CFD products, we leverage 30+ years of global expertise and multi-regulatory strength to provide brokers, hedge funds, and trading desks with reliable execution, secure infrastructure, and tailored growth opportunities.

Done well, that partnership reduces costs, protects margin, and improves client experience — turning liquidity provision from a commodity into a competitive advantage.

Find out more about how Hantec Prime can help you achieve this:

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