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Crypto Liquidity, The Complete Guide


If you are opening a crypto brokerage or thinking of adding cryptocurrencies to your offering of tradable assets, you are going to need crypto liquidity for it. In this article, we explain how it works and how to get the best option for your business.

Cryptocurrency Liquidity Explained

As any broker would agree, Crypto Liquidity Providers, or “Market Makers” as some like to call them, are an essential part of any broker’s operation. No matter which tradable instruments you offer for your clients, be it Forex, CFDs, Futures, Commodities, etc., securing reliable and solid liquidity for them is a necessity.

In general, the main purpose of crypto liquidity is to allow the asset to be bought and sold by a trader with ease. For cryptocurrencies, liquidity means the measure of ease by which a coin can be converted into fiat currency (USD, EUR, etc.) or to other cryptocurrencies.

In simple words – when there is low liquidity there is high market volatility, which creates spikes in the asset’s prices. Conversely, when liquidity is high it means that the market is stable, and price fluctuations are smaller.

When the market is liquid, buying and selling cryptocurrencies is easier for the trader, since there are higher volumes of trading activity, so orders can be executed more quickly. Since the Crypto market is one of the most hectic markets available today, when liquidity is high it means that traders enter a position or exit at any point.

Benefits of a Strong Crypto Liquidity

The best-case scenario for everyone involved in trading is when the market is highly liquid. It means better prices for brokers and for traders, as the numbers and size of buyers and sellers create a balanced price for the instrument, which all participants can be satisfied with.

More importantly, it also ensures stable market prices, without large differences in short periods of time. When prices are stable enough, the market can endure large orders without significant spikes or changes. In this case, brokers can offer fast and smooth execution for greater numbers of clients and for larger orders.

Another notable benefit of high liquidity is the ability to perform more accurate chart analysis on the market since in a stable market technical analysis tools would be more precise.

What Drives Crypto Liquidity

There are several factors that determine the level of liquidity for any cryptocurrency coin.

Trading Volume

A short glance at CoinMarketCap or any other coin ranking website will show you the daily volume of each coin on the market. The trading volume indicates the number of people buying and selling the coin and the sizes of their positions, making it a key factor in deciding the coin’s level of crypto liquidity.

With the outburst of Crypto exchanges in the past few years, more and more people gained easy access to Crypto trading. The rise in trading volume, especially for the major cryptocurrencies such as Bitcoin and Ethereum, was instrumental in improving liquidity for them.

Market Acceptance
Another major factor that drives Crypto liquidity is adoption. As cryptocurrencies become increasingly accepted for transactions in more and more platforms, their liquidity grows. For this reason, it is essential that Bitcoin and other coins will gain acceptance as methods of payment by more merchants worldwide.  

Regulation

Crypto regulation varies between different jurisdictions, as every country fosters a different attitude towards cryptocurrencies – from the near-complete acceptance, through ambivalence, and all the way to a complete ban.

Whatever the legal situation, cryptocurrencies keep growing rapidly, forcing authorities to take a clear stance in order to provide protection for consumers and create a fair taxation plan. As more countries jump on the bandwagon, the inevitable result would be broader acceptance, greater trading volumes, and higher crypto liquidity.

How to Choose the Best Crypto Liquidity

For Crypto brokers, choosing the most suitable liquidity provider is a matter of assessing their unique needs among several factors:

Instruments

The first thing you should consider is the selection of instruments that you plan to offer to your traders. Whenever you choose a Liquidity Provider, the best option is always one that offers you multi-asset liquidity, combined with FIX protocol access and historical data. You should look if the provider can convert your desired coins to fiat money and back, and what is the selection of cryptocurrencies and tokens that he accepts.

Volume

The number of orders at each price for a certain currency determines its “Market Depth” – a key factor to consider when looking for liquidity. The market depth which your provider offers for any particular asset is ultimately an indication of his stability as a provider.

Speed of Execution

A good Crypto liquidity provider should be able to execute trades fast with minimum requotes and slippage, especially during times of news events that cause a major impact.

Pricing

Your LP’s price offering should have competitive spreads, low commissions, and low swaps without compromising either side.

Price Feeds

Your provider’s data feeds should be always stable and reliable. The price feed should aggregate prices from all the relevant exchanges and from the Forex market in real-time. If price data is not delivered on time in a matter of split seconds, the result would be unacceptable price gaps.

Technology

An advanced Crypto liquidity provider must be able to offer FIX protocol connection as well as other APIs, integration with MT4 and other trading platforms.

Leverate – Your First Choice for Crypto Liquidity

As Crypto trading becomes ever more popular, more and more brokers are looking for a trusted and reputable cryptocurrency liquidity provider. With more than 12 years of market experience, Leverate is the leading provider that ticks all the boxes for startup Forex brokers and major brokerages alike.

LXCapital – Leverate’s cryptocurrency liquidity solution, uses the most advanced technology to provide brokers with the most suitable liquidity for every need. No matter the currency you wish to offer your traders, with LXCapital you can offer them the best price at any given moment, with minimum slippage and zero gaps.

LXCapital combines liquidity from major Crypto exchanges to determine the most accurate price for every coin in a split second. This allows Leverate to offer low spreads, minimum commissions, extremely high execution speed, and zero rejections. All of this is possible because of a powerful engine that processes an enormous number of orders in a second.
Leverate’s Crypto liquidity allows connectivity to MT4 and to Leverate’s own Sirix trading platform, available on desktop, web, and mobile. Connecting to Leverate’s Crypto liquidity solution is very easy, and all the technical part is performed by our skilled developers, who also provide training and constant support.

But most importantly, we understand that no broker is created alike, and everyone has different needs and wants. For this reason, we offer a completely tailor-made liquidity solution, which can accommodate any demand. No matter what you wish to offer your traders, our solution can be configured according to your liquidity specifications.

As our VP of Sales, Maoz Tenenbaum, puts it: “The major thing to look for when choosing a Crypto Liquidity Provider is a solid and reputable Technology Provider which has not only the proper connections but also a vested interest in their associates’ success. We are always happy to help new and veteran brokerages with accommodating Crypto into their offering. It’s mutually beneficial!”  

Aaron Miller



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