Composite Liquidity Aggregation

How to Read This Diagram

Composite liquidity aggregation transforms multiple independent LP price streams into a single, unified order book that clients see on their platform. This process runs continuously, typically updating the composite book hundreds of times per second.

Feed Normalization aligns timestamps and converts different FIX message formats into a common internal representation. Quote Filteringremoves stale quotes (older than a configurable threshold, typically 50-200ms) and validates spreads against maximum thresholds. Book Merging selects the best bid and best ask across all LP streams, creating a tighter composite spread than any individual LP typically offers.

Why Composite Spreads Are Tighter

If LP-A quotes EUR/USD at 1.0850/1.0852 and LP-B quotes 1.0851/1.0853, the composite book shows 1.0851/1.0852 -- the best bid from LP-B and the best ask from LP-A. The resulting 1-pip spread is tighter than either individual LP's 2-pip spread. More LPs generally means tighter composites, but there are diminishing returns beyond 8-10 quality providers.

The Markup Layer

After merging, the broker applies its own markup (spread addition) to generate revenue. This can be symmetric (equal on both sides) or asymmetric. The raw composite spread plus broker markup equals the final spread the client sees. The quality of the aggregation directly determines how tight the final client spread can be while still being profitable for the broker.