Where do brokers get quotes from? What is a flow quotation

Brokers facilitate trading the markets through their platforms and allow investors and traders to quickly express their views on the market through trading. But how do they actually operate?

In order to understand how brokers operate and where they get their quotes from, we need to look at it from a wider perspective. The dynamic here is similar to that of any market that consists of buyers and sellers. Traders (the clients) pay sellers (the brokers) a fee (the bid/ask spread) to gain access to the Forex market. 

In this equation, brokers are actually retailers who provide the service  by being connected to liquidity providers. Among them there are usually big names such as UBS, HSBC, Credit Suisse, Deutsche Bank and others.

The broker will receive real-time streamed quotes from the liquidity providers by connecting to the interbank market through a bridge interface. This allows brokers to receive the constant flow of quotation that they use to “resell”  to individual traders.

Larger brokers usually establish protocols with more than one market maker, which allows them to be flexible when executing orders, and also offer better prices. Meanwhile, small Forex brokers might have only one or two liquidity providers, which could narrow their options in certain situations.