There is a tendency in the trading industry: more brokers are preferring gateways over bridges to connect to liquidity providers. Why does it happen and what is the difference between these two solutions? Liquidity bridges may seem to some users to be more efficient and comprehensive products because of their complexity, but it’s not quite the correct approach. As with any case we should prioritize business goals of a specific brokerage and choose the solution according to them. There are several key contrasting points between bridges and gateways that may help brokers to understand which technology suits them more.
Installation
Operating as a component of MT5, gateway does not require a dedicated database or a server. Once the gateway is connected to the trading platform it will be able to work with any elements of MetaTrader infrastructure. Trading platform automatically shares plugins’ configurations to all components of the cluster, which in practice allows brokers to provide liquidity to several trading servers with one gateway.
In contrast, bridges are designed to connect several MT4 and MT5 servers and to aggregate liquidity from several providers. Operating as a third-party technology with sophisticated architecture, bridges need a separate database to store routing rules, symbol configuration or logs for processed trades, and this storage should be synchronized with a trading platform. The complexity of bridges’ design makes them a flexible solution, i.e. allowing to accurately configure hybrid execution or simultaneously process trades with different providers dividing position between them.
Symbol configuration and maintenance
As an installation process, symbol configuration in the gateway is quite straightforward. The solution basically connects MT5 with only one liquidity provider, so to start trading brokers need to map symbols on the platform with the list from LP. All additional features as a markup configuration are available in the MetaTrader interface. In cases when brokers need more features like liquidity aggregation they may try to use in-built functionality of the trading platform, namely ECN symbols may be used to execute trades at the best price from the depth of the market.
Sophisticated infrastructure of bridges requires more attention to set up, maintain and troubleshoot errors. For example, the initial symbol configuration in a liquidity bridge may occur to be quite time-consuming. Bridge simultaneously operates with three lists of symbols: from the liquidity provider, from a trading platform, and an intermediate list of the bridge solution. To start trading, all three must be correctly linked with each other, so a broker may spend some time configuring it. The noticeable advantages of this approach is the possibility to fine-tune all possible parameters in each stage of the symbol configuration.
Routing
If a broker uses the gateway, the trade goes through a trading platform directly to a liquidity provider. On the trading platform side, the trade is processed with the routing rule and gets into the gateway which passes the order to the provider without any additional aggregation.
Liquidity bridges operate differently. Such solutions are implemented as an additional stage between platform and provider. After a trade is created it goes through the gateway (or MT4 plugin), leaves the trading platform, and gets to a bridge. Then the trade request is redirected via the FIX session to the liquidity provider to be executed. This route affects the performance of bridges especially during the operation with pending orders.
Execution models
Another key advantage of liquidity bridges is the ability to accurately configure hybrid execution. Bridges functionality is very flexible in partial trades execution on the liquidity side, so brokers may specifically set for which trades should be processed in-house, and which ones should be transferred to the counterparty. Despite the traditionally high demand for such features, there are some brokers who abandon hybrid execution in favor of the STP model. For them the gateway functionality will also be quite comprehensive. Moreover, gateways fully support available fill policies:
- Fill or Kill. The order will not be executed if the necessary amount of a symbol is currently unavailable in the market.
- Immediate-or-cancel. If the order cannot be filled completely, the available volume of the trade will be filled, and the remainder will be canceled.
- Return. The available part of a trade is executed immediately, all rest is executed under the pending order.
This functionality is very helpful during stock trading.
Stock trading
Real-time quotes on stocks may be very expensive, so most brokers prefer to use indicative prices from market data providers and use liquidity providers only for execution. Sometimes, when a trader wants to open a trade with the indicative price, the market can not promptly cover this request, therefore the need to operate with pending orders occurs. Gateway adapts to these conditions using fill policies to interact with the counterparties, but bridges may not have such functionality which causes specific issues during its performance. When the platform receives information from the LP through some «mediator», even insignificant delays affect trades execution: while a quote goes through all stages to a trading platform, the market price may change and the bridge would either return order or offer a requote.
Reporting
The mediator position between the market and trading platform gives a bridge access to all information on processed trades. It allows users to easily generate detailed reports and provide brokers with information about turnover on specific symbols, accounts, groups or providers. Reports can also demonstrate execution rate, slippages and trading volumes in lots or currency. Such information may be especially helpful during hybrid execution or during the uncertain market conditions when brokers should promptly make the correct decision to mitigate potential risks.
Gateways reporting abilities are limited by the platform functionality and should be separately configured for each of the trading servers. The solution offers brokers a number of preset reports like turnover report, profit report or white label report. In order to get any other analytics, brokers will need to develop additional technology that will complement native functionality.
Security
There are two key security aspects in the operations of liquidity management solutions. The first aspect is hosting. Unlike gateways, some bridges are hosted on the side of the technology provider, limiting the broker’s control over the solution and trading processes. Moreover, the bridge provider gets access to all the data, which should be treated more carefully, especially in an era of data breaches.
The second aspect is emergency procedures. As a third-party solution, bridges have in-built risk-management tools, but their mechanics and reliability are fully defined by the technology provider and may not guarantee absolute efficiency. For example, brokers should pay close attention to the bridge workflow with backup servers. There are cases when, after the MetaTrader is automatically switched to backup, the bridge still maintains a connection to the live server, and a broker needs to change it manually. Contrary, MT5 gateway follows the scenarios provided by the trading platform, which can automatically handle crucial errors including a crash of a live server. In this case the MetaTrader cluster will automatically switch a trading server with a backup, whereas a gateway continues to operate without interruptions or additional configurations.
How to choose the right liquidity management technology
Both liquidity bridge and gateway will certainly provide brokers with basic functionality like market access or trade execution, especially if the software provider is trustful and reliable. As we discussed, the difference between these technologies is based on the contrast of their purposes and specific functionality. Summing up we can formulate a few questions which would help to choose the correct solution:
- Do you use only one liquidity provider?
- Is there only one MetaTrader server in your business infrastructure?
- Do you provide stocks trading?
If all your answers are “yes”, it is likely that gateway functionality will be sufficient and cover all business needs providing a simple and reliable way to manage liquidity.
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