Foreign Exchange (FX) is the largest and most liquid financial market in the world. And navigating that market with as little risk as possible is easier said than done, particularly with repeat fluctuations giving way to challenges like:

  • Constantly having to monitor a vast array of economic indicators, disruptive geopolitical events, and changing market trends
  • Greater currency risks due to rapid price movements

However, avoiding these setbacks requires solving a wider challenge your business is facing: relying on a single liquidity provider. 

Otherwise, you will be opening up your treasury team to obstacles including limited market depth, a lack of competitive pricing, and potential counterparty risk.

Having a more diverse set of liquidity providers isn’t just about limiting your exposure risk either — a wider range of choices boosts your chances of achieving lower cost of trading and transparent margins in the long run.

At Just, we've established a reputation for bridging the visibility gap in interbank market data for corporations. This enables more informed bank negotiations and access to more transparent rates. We've identified a parallel gap in how these businesses understand their liquidity options, and are poised to offer solutions to address this need.

Here, we will cover why diversifying your corporate FX liquidity providers should be front of mind in the new year — and leading best practices you should be following to see that through.

Exploring the benefits of diversifying liquidity providers

Ranging from large banks and financial institutions to specialised non-bank financial entities, all corporate FX liquidity providers have the primary purpose of facilitating currency trading for businesses like yours, offering competitive buy and sell prices for currencies — essentially acting as market makers.

But while you may feel that your current provider is fulfilling the above purpose, exploring other available options can uncover multiple, further advantages, particularly if you’re handling a variety of trades.

Let’s explore these benefits in more detail:

  • Competitive pricing: A broader range of providers means more pricing options, allowing your corporation to secure better rates and reduce transaction costs.
  • Customised solutions: Non-bank providers, especially, can offer tailor-made solutions that align perfectly with specific corporate needs. These solutions can range from specialised financial instruments to bespoke risk management strategies.
  • Greater transparency and control: In today's technology-driven world, platforms that offer a comprehensive overview and control of your FX operations are essential. Such platforms can provide real-time insights into your FX transactions, ensuring transparency and better decision-making.
  • Risk mitigation: Diversification in liquidity sources acts as a buffer against market volatility and counterparty risks. By spreading your FX activities across multiple providers, you reduce the impact of any single provider's failure or market fluctuation.

Best practices for diversifying your liquidity providers

With the pros of diversifying your portfolio of providers covered, the only remaining question is: how? 

The short answer is by investing in a marketplace tool that can give you a complete look at the scope of providers available. With the right technology supporting your business, you can begin your diversification strategies by:

  • Assessing your current providers: Start by evaluating your existing FX liquidity provider through a marketplace solution that looks at multiple defining factors. This assessment should focus on the provider’s execution performance, transaction costs, and how well they meet your company's FX and risk management needs. 
  • Conducting market research: Perform thorough research to identify potential new liquidity providers. Consider factors such as offered currencies, transaction costs, and technological capabilities. Plus, leading platforms will enable you to filter different providers based on different currencies, transaction types, or regions. This step is pivotal in understanding the landscape and identifying providers that can offer a competitive edge.
  • Vetting for compliance: Ensure that any new providers comply with relevant regulations and have a strong market reputation. This is a crucial step in mitigating legal and operational risks, and will often require the power of an automated, compliant tool to perform this evaluation at a rapid, yet detailed scale.
  • Negotiating terms: Once potential providers are identified, negotiate terms that align with your company's FX strategy. This includes not just cost, but also service quality and flexibility.
  • Ongoing monitoring (powered by automation): Regularly review the performance of all your FX liquidity providers. This should be an ongoing process, leveraging technology to assess cost, execution speed, and service quality.

Making an informed decision with Just

The dynamic nature of the financial markets demands a strategy that can adapt to changing conditions while minimising risk and maximising efficiency.

That’s why we at Just have developed our latest platform, Liquidity Connect. 

Tailored to bridge the gaps in current treasury management strategies, Liquidity Connect does the heavy lifting in vetting providers for reliability and offering comprehensive online trading capabilities. This alleviates the concern and grunt work for your corporate treasury teams, allowing them to focus on strategy and decision-making.

Our tool offers a simple and vetted way to diversify FX liquidity providers, ensuring fair pricing, customised solutions, and enhanced decision-making and hedging strategies. Moreover, it mitigates risks by providing a diverse range of reputable liquidity sources, all of which are assessed and vetted every quarter to guarantee ongoing compliance.

For corporations looking to stay ahead in the dynamic world of FX trading, diversifying FX liquidity providers is not an option; it's a necessity. And with Liquidity Connect, this necessity becomes an opportunity to redefine how your corporation engages with the world of FX trading, setting new standards in efficiency, transparency, and risk management. 

Discover how our tool can support your business today by booking a demo.