Forex Bridge Providers came into prominence when the industry realized MetaTrader 4 was here to stay. MetaTrader 4 (MT4) was designed as a standalone platform for Forex Brokers. There are three components to MT4. The client-side platform, the manager which was used by dealers and the Admin which was used to setup the Forex Pairs and other tradeable products. One of the issues that had always plagued Brokers that use MT4 was that it was not FIX compliant. This means that the MT4 platform could not communicate to exchanges or other Financial Institutions.
Forex Bridge Providers Offer a Link Between Forex Brokers and Liquidity Providers
As more and larger Forex Brokers began adding MT4, a need grew to create a way for MT4 to “talk” to the financial world. Boston Technologies and PrimeXM were two of the first to market with “bridges” that were used by these Forex Brokers. These Forex Bridge Providers allowed Forex Brokers to cleanly pass off risk to their counter-parties. They also help standardize pricing as the bridges would validate prices from the Interbank Market. It wasn’t long until even Citibank and Deutsche Bank were offering MT4.
Using a Forex Bridge Provider Means Added Cost
The integration that came with Forex Bridge Providers also meant an added cost for many Forex Brokers. This actually took away one of the competitive advantages that MetaTrader 4 offered. When Forex Brokers use MT4 there are no transaction costs which is not the case with other Retail Forex Software. Bridge Providers were charging on a per million basis and this meant additional tens of thousands in transaction fees for these brokers.
Some recent changes in MetaTrader 4 might now change the landscape for many Forex Brokers. Recently MetaQuotes has added a gateway feature that can replace the need for a liquidity bridge. The gateway allows the broker to add counterparties without the need for any integration. In the past the integration process could take weeks or even months depending on the complexity of the setup.
MetaQuotes has made a concerted effort in its development of the new gateway system. It may take some time but one would imagine that the cost savings will drive more and more Forex Brokers to use this option and to abandon their current Forex Bridge Provider.
Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.