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The world of forex is a wildly competitive space. With as much as $7.5 trillion in global trading volumes recorded, taking opportunities ahead of the competition remains paramount for professional traders. 

However, access to reliable liquidity has proved to be a challenge for institutions, with the pursuit of frictionless market access coming into conflict with global regulatory pressures in certain cases. 

Advantages of Efficiency in Liquidity
 

For institutions working with liquidity providers, there are many benefits that come with using a trusted provider for efficiency within forex markets. 

Crucially, liquidity providers offer access to deeper liquidity pools, providing a more comprehensive gateway to greater liquidity. For broker-dealers, this makes it easier to make larger trades without suffering from price slippage. 

Broker-dealers can also access tighter spreads provided by liquidity providers accessing a wider network of liquidity sources such as large banks and financial institutions. Tighter spreads allow for trades at the best possible market rates. 

Efficient liquidity providers also offer enhanced risk management by helping to ensure that buyers and sellers are always on hand for trades to minimize the risk of price gaps and unwanted market volatility. 

This means that using a good liquidity provider maintains price stability within the forex market. With the world’s highest trading volumes constantly flowing through FX markets, the ability to gain control over the flow of trades and prices is highly sought after among broker-dealers. 

Managing Regulatory Pressures
 

This greater market control can come at a cost. FX liquidity providers must be compliant with regulatory requirements at all times. 

With government agencies, legal frameworks, and other regulatory requirements issues throughout different regions, compliance can be a major challenge for broker-dealers when using liquidity providers. 

One key issue when it comes to compliance is the uneven regulatory frameworks throughout jurisdictions. 

To illustrate this, we can look at some of the global regulators and their reputation for compliance scrutiny. In a bid to prevent financial fraud and crimes like money laundering, financial authorities are subjected to frameworks and varying levels of scrutiny. 

In the United States, the Securities and Exchange Commission regulates securities and markets. The SEC’s framework features five entities supervising investments, risk analysis, interbank foreign exchange markets, trading and securities, and corporate finance. 

One of the most elusive regulators in the forex landscape is the Financial Conduct Authority in the United Kingdom. Because of the FCA’s regulation of publicly listed companies for credit consistency, transaction legality, and lending activity, any liquidity providers with an FCA license are regarded as highly reliable. 

Similarly, gaining a license from the Cyprus Securities and Exchange Commission (CySEC) is a good indicator of a trustworthy liquidity provider. 

Other regulatory bodies like the Financial Services Commission in Mauritius and Dubai Financial Services Authority possess many different levels of scrutiny and risk management, making liquidity providers with licenses in multiple jurisdictions a strong indicator of competence in compliance. 

Regulatory Warnings
 

In a recent review conducted by the UK Financial Conduct Authority, too many institutions place insufficient weight on liquidity risk management in their governance oversight arrangements, while also lacking coherent liquidity management tools.  

The FCA also used a variety of approaches to liquidity stress testing to discover that some methodologies are insufficient to assess the actual liquidity of portfolios. 

Crucially, the report found that despite firms having governance and organizational arrangements available to meet large one-off redemptions, there were no sufficient arrangements in place to oversee cumulative or market-wide redemptions that could have a major impact on funds. 

As a result, the FCA warned that firms need to increase their focus on liquidity risk, which could see broker-dealers lose out when operating with untrustworthy liquidity providers. 

Uniting Innovation and Trust
 

Thanks to innovations in artificial intelligence, matters of risk management and regulatory compliance can be managed with the help of machine learning (ML) technology. 

The regulatory climate surrounding forex is continually changing throughout different jurisdictions, and ML tools can help to actively monitor for changes and modifications to compliance to ensure that broker-dealers and the liquidity providers they use remain compliant at all times. 

AI tools can also alert decision-makers should their operations become problematic for compliance in certain jurisdictions. 

Broker-dealers seeking to optimize their access to liquidity should blend technology with trust for the best levels of efficiency when navigating forex markets. 

Seeking regulatory accreditation can be a major advantage here, with FCA and CySEC certificates a particularly strong sign of trustworthiness. Identifying a compliant liquidity solution for brokers with multi-asset liquidity and low-latency services can be particularly advantageous in minimizing slippage. 

With artificial intelligence continuing its relentless growth in financial markets, more broker-dealers will be capable of uniting innovation and trust over the coming years to capitalize on opportunities faster with around-the-clock compliance monitoring. 

Achieving Compliance
 

Global forex markets are extremely fast-paced, with substantial trading volumes recorded on a daily basis. For broker-dealers seeking to trade with efficiency, timing is of the utmost importance. This means that compliance monitoring can bring barriers to optimization that are difficult to overcome while managing trades and competing against slippage. 

In the near future, trust will combine with emerging technology, helping more broker-dealers to conduct around-the-clock compliance monitoring without missing a beat in the FX landscape. 

This unity will pave the way for sustainable progress for institutions and their liquidity providers, helping to keep one step ahead of competitors while maintaining compliance on a global scale.

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