When a broker places an order on an exchange, it is vital for him to quickly execute it at the declared value. To do this, there should be a counter order with the same price in the order book. The greater the supply/demand ratio (ask / bid), the greater the likelihood of a quick and successful transaction. The number of buy and sell orders (offers) in the order book determines the market depth.
Increasing the market depth is equally beneficial for all the exchange participants. A trader will be more willing to trade where there are many orders and a higher probability of closing a position. At the same time, a broker earns on each completed transaction. The exchange owner typically receives income from the activity of participants and trading volume.
What determines the market depth?
In order for the maximum number of buy and sell orders to appear in the market depth, there should be people who want to trade. When there are many traders, a suitable buyer is easy to find for any offered asset. The ability of exchange-traded assets (currencies, securities, digital assets, futures) to be bought and sold quickly is called liquidity. It turns out that liquidity is directly related to the market depth.
Liquidity does not exist on the stock exchange by itself. It is ensured by large suppliers called market makers. They hold assets, making them available for purchase or sale. Systemically important banks, large commercial banks, hedge funds, forex brokers and crypto brokers, wealthy retail traders can act as market makers.
Increasing exchange liquidity is a real task. On the https://takeprofittech.com website you can download plugins for the popular MetaTrader 5 trading platform, which allow you to obtain a large amount of liquidity and, accordingly, increase the market depth.
Market Depth Management Tools
Market depth can be managed in two ways.
1. Get liquidity directly from providers.
This will require a service that allows for a direct connection with the provider. The Liquidity Bridge plugin allows you to set up a bridge (gateway) and route orders, redistributing them between exchange participants. The bridge allows you to use the A-Book model (orders go directly to suppliers) and the B-Book model (broker acts as an intermediary) at the same time, without restarting the server.
If there is not enough liquidity, you can use the Liquidity Hub plugin. It aggregates liquidity from all major Tier-1 providers, forming a deep order book for each position.
2. Create market depth without the participation of liquidity providers
It is not necessary to contact providers to form a pool of offers for a trading instrument. The MT5 Gateway plugin runs on the MetaTrader 5 platform and acts as a connection gateway. It creates depth of market for assets and confirms the execution of traders’ orders without sending them to liquidity providers.
How MT5 Gateway works
The gateway does not ensure the transfer of the entire market depth, but only provides access to the top quotes of the order book. Based on the data received, the plugin generates prices in accordance with the protocols and independently forms the market depth. The price pool is sent to the MetaTrader 5 trading server, and at the same time, the server processes counter orders. The transaction between the parties takes place at the weighted average price.
The advantage of a gateway is that it is extremely simple to implement. This limits the technical risks in redirecting orders and processing trades. In the event of technical problems, engineers can easily find the source of the problem and fix it without interfering with continuous trading.