Trading volume in Cryptocurrencies has exploded over the past few months, and the need for the Cryptocurrency Liquidity Provider has never been higher. For Forex Brokers Cryptocurrencies offer many new opportunities but many challenges as well.
The cryptocurrency market is still in its infancy and is entirely decentralized. Numerous exchanges have appeared over the past year, but these are Cryptocurrency Brokers themselves. These exchanges are primarily focused on retail trading and are not an ideal solution for institutions or funds individually.
Cryptocurrency Liquidity Providers have created solutions that aggregate liquidity from the more established ones like GDAX, Kraken, CEX.IO, and Poloniex. These Cryptocurrency LPs have also entirely integrated to MetaTrader 4 with the industry standard bridges PrimeXM and One Zero. The Cryptocurrency LP will then create a cross with the base currency of the Brokers choice USD, British Pound, Australian Dollar.
Risk Management is another primary consideration for Forex Brokers before they decide to offer Cryptocurrency crosses. Many of these products are extremely volatile, and it is not uncommon to see 5 to 10% moves in a day. This usually results in reduced leverage offered by the Cryptocurrency Liquidity Provider. These levels are typically set at 3 to 1 or up to 5 to 1. A far cry from the 100 to 1 leverage which is the industry standard for retail Forex Brokers.
One major consideration for Forex Brokers in offering Cryptocurrency crosses is that the majority of Cryptocurrency Liquidity Providers are unregulated or are operating in jurisdictions that are friendlier to business that offers Cryptocurrency services. Brokers need to carefully consider the jurisdiction of their counterparty and make sure that it works with their local regulators.
Brokers will also need to consider if they will be able to offer deposits in various cryptocurrencies like Bitcoin. By doing so, they need to make sure that they remain compliant with their regulators AML and KTC standards.