The Application of Bridge Technology in Forex
As the global retail forex market develops, competition in the forex trading market becomes increasingly fierce. A good worker needs the best tools. For forex brokers and traders, choosing the right tools often determines their competitiveness in the market, and forex bridge technology is one such essential tool.
In the forex market, liquidity is one of the most important factors in creating profitable trades. The stronger the liquidity, the smoother the execution of customer orders in the market. However, without a "bridge," all is in vain.
【The Reason for the Emergence of Bridge Technology】
Trading platforms have popular front-end interfaces and risk management components, but they are not designed to connect directly with banks and liquidity providers. This leads to the MT4 platform's inability to directly connect to other trading servers or directly access liquidity for quotes and order transmission without being encapsulated to interface with the FIX protocol.
Forex brokers must choose bridge solutions to connect their trading platforms with liquidity providers, prompting some software companies to develop technology to help brokers connect MT4 servers with liquidity providers.
【What Can High-Quality Bridge Technology Do for Brokers?】
1. Improve customer loyalty
For retail forex brokers, the greatest advantage of a quality bridge solution is to enhance customer loyalty and process customer orders more efficiently.
The primary tasks of brokers include continuously attracting new clients, maintaining existing client relationships, and managing internal operations. Bridge technology continuously brings added value to brokers. For instance, a broker promoting its stable 24/7 service and market access must have good bridge technology as support.
2. Maintain platform stability
The reliability and scalability of the bridge are very crucial for the execution of trades and the stability of the platform. Any liquidity bridge exceeding a few milliseconds of delay is unacceptable. An MT4 bridge often requires months of repeated testing and research before it can be optimized.
3. Reduce trading risk
As investors become more savvy, many brokers are unwilling to take on the risk of counterparty trades, prompting an increasing number of brokers to directly pass orders to liquidity providers, which helps reduce risks.
Industry insiders believe that bridge technology provides brokers with greater transparency, increasing their access to effective information, thereby enabling them to make favorable decisions continuously. Current liquidity bridges can support different operational and execution models for forex brokers, helping to mitigate risks.
【The Development of MT Bridges】
- Obtaining quotes, transmitting orders
- Around 2006, the first MT bridge appeared. Some brokerages developed a tool to connect the MT server with other servers, which was the initial bridge. At that time, the bridge was only for internal use by brokerages and was not sold externally, nor were there technology companies specializing in bridge technology.
Today, bridge technology is an essential for every broker using the MT4 platform. The basic function and core value of the bridge are to obtain quotes and transmit orders.
2. Price integration and smart order routing
As competition in the forex market intensifies, MT4 brokers seeking a foothold started to focus on the product spreads behind MT4 and the quality of order execution, evolving the requirements for bridges from initial stability and low latency to more functionalities. Simple quote retrieval evolved into price integration after connecting with multiple liquidity providers; simple order transmission evolved into order routing.
After accessing quotes from four liquidity providers A, B, C, and D, the bridge needs to integrate these quotes to obtain the best buy and sell prices. For brokers, the spread cost for some liquid assets can be relatively low.
After the emergence of four liquidity providers, how to transmit orders also becomes a problem. For example, at the same time, Citibank can handle 20 lots, and Deutsche Bank can handle 40 lots. If a 40-lot order comes in, how should it be divided? Clearly, passing the order to Deutsche Bank would be quicker and better without the need for splitting. This is what smart order routing is for.
Price priority, transaction size, execution rate, large order splitting—these are all matters that bridge companies need to consider.
3. Other functions of the bridge
In the development process of bridge technology, to meet the needs of broker clients, some bridge companies developed other functionalities. For example: 1. Filtering: Ability to decide which trades need clearing and which do not, based on configured currency pairs, user and user group settings; 2. Multiple channels: Specifying clearing counterparts, offering technology for simultaneous clearing with multiple parties; 3. Price optimization: Optimizing execution prices based on the prices of clearing counterparts; 4. Order mode optimization: Transformation and execution optimization of limit orders and stop-loss orders; 5. Large transaction optimization: Splitting large transactions into batches for execution. Due to philosophical differences between bridge companies and traders, some features that violate the principles of fair trading may also emerge in the market.
【Conclusion】
Without bridging, orders cannot be passed out, avoiding issues like slippage or lock-ups, but excessive slippage is abnormal and hard to control. Only when several economic traders at the same time, at the same point, experience floating slippage and lock-ups, should it not deviate too far from the average value.
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