Large Institutional clients see wider spreads than “prime of prime clients” because institutional flow is more challenging to monetize for Liquidity providers.
For institutions EURUSD is around 1pip, GBPUSD around 2pips while retail market makers see aggressive 0.1/03 in EURUSD and 0.5/08 in GBPUSD type spreads.
The Retail broker wants to buy – rather than pay the offer at 1.35113, Minerva puts a limit to buy or bid at the mid spread 1.3511 on MFP Trading’s institutional platform.
MFP might show 1.3511 minus a 0.5 markup or 1.13105 to institutions who were previously seeing 1.3510 bid as their best price.
Institutions will find 1.13105 to be a very attractive price to sell at as it is 0.5 better than the 1.3510 bid they had in front of them before Minerva’s price.
Institutions will trade with the MFP platform at 1.35105 saving 0.5 vs the 1.3510 they were seeing before.
The retail broker saves 0.3 in execution costs as it bought at 1.3511 instead of 1.35113.
In this example, MFP makes 0.5 from the markup or roughly $50 per m – After clearing, IT and sales costs, MFP can pay up to $20 per m with a 50% profit share.
Total savings through this approach are $80 per m in this example compared to the typical “pay the spread” approach.
Note that MFP maximizes revenues per client and can make much more than 0.5 in many cases, like with emerging market currencies. Payouts are higher in those scenarios.
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