Where your broker's prices come from.

Open two trading platforms side by side and watch EUR/USD. At the same second, one might show a bid of 1.10001 and the other 1.10004.

Neither platform is broken. The forex market has no central exchange and no single official price, so each broker builds its own quote from the sources it buys from.

Who supplies the prices a broker shows?

The raw prices come from liquidity providers, firms that stream buy and sell prices to the broker many times a second and stand ready to trade at them. Most are large banks or electronic non-bank trading firms.

Each quote in that stream has a bid, an ask and a size, such as 1 million euros. The size is how much the provider will trade at that price before moving to a worse one.

Smaller brokers often cannot open accounts with large banks directly. Many reach them through a prime of prime, a firm that has a bank prime brokerage account and passes access, credit and prices on to smaller clients.

The quotes then pass through software that combines them, then through the broker's own pricing rules, and finally onto your screen. The glossary entry on the liquidity provider covers the term in brief.

How does a broker combine quotes from several providers?

The software that merges the streams is an aggregator. For each instrument it watches every incoming quote and keeps the highest bid and the lowest ask, because those are the best prices on each side.

Here is an illustrative snapshot of EUR/USD from three providers at the same instant:

1. The highest bid is 1.10004, from LP B.
2. The lowest ask is 1.10008, from LP C.
3. The combined quote is 1.10004 bid, 1.10008 ask.
4. Its spread is 1.10008 minus 1.10004 = 0.00004, which is 0.4 pip.

The combined spread of 0.4 pip is tighter than any single provider's. This is one reason a broker connects to more than one source.

The best price only covers the size quoted with it. Say LP C offers 1 million euros at 1.10008 and an order needs 2 million.

The second million may fill at the next best ask, LP A's 1.10010. The average price is then 1.10009, half a pip worse than the screen showed. Retail orders are usually far smaller than these sizes.

What does the broker change before you see the price?

The combined quote is rarely what reaches your screen. Most brokers add a markup, a small amount pushed onto each side of the price, and the wider spread that results is part of how they are paid.

Continuing the example with an illustrative markup of 0.3 pip on each side:

1. Bid: 1.10004 minus 0.00003 = 1.10001.
2. Ask: 1.10008 plus 0.00003 = 1.10011.
3. Your spread: 1.10011 minus 1.10001 = 0.00010, which is 1.0 pip.
4. On one standard lot of EUR/USD a pip is worth $10, so the spread costs $10.
5. Of that, 0.4 pip ($4) is the market spread and 0.6 pip ($6) is the markup.

On a raw spread account, the broker usually passes the combined quote through with little or no markup and charges a commission per lot instead. The lesson on Standard vs Raw accounts compares the two.

Pricing rules can also drop quotes that look stale or far from the rest, set a minimum spread, or widen the spread at certain times of day. These rules differ from broker to broker.

A broker that keeps some client trades in-house, as described in A-book and B-book brokers explained, usually still starts from market feeds. Prices that drift away from the wider market invite arbitrage against the broker.

Why do two brokers quote different prices at the same moment?

Every step above is a choice the broker makes, so two brokers rarely end up with identical numbers. The usual causes are:

• Different liquidity providers, so the best bid and ask each one receives differ.
• Different markups, which can also vary by account type at the same broker.
• Timing, because a feed that arrives a few milliseconds later can show a price the market has already left.
• Different filters and spread rules inside the pricing software.

Here is an illustrative pair of quotes taken at the same second:

Broker Y has the tighter spread. At this second it also pays a seller 0.3 pip more, while Broker X charges a buyer 0.2 pip less. On one standard lot, those gaps are worth $3 and $2.

So the better entry price depends on which way you trade. A full round trip at one broker still costs that broker's spread, and quotes keep moving, so the average spread over many readings tells you more than one snapshot.

When do broker prices widen or jump?

A broker can only pass on what its providers are willing to quote. When providers turn cautious, they widen their spreads, cut the sizes they offer or pause, and every broker that relies on them shows the effect.

This tends to happen around major economic releases and when markets reopen after the weekend. It also happens at the daily rollover near 17:00 New York time, when spreads often widen for a short period.

Some providers also use last look, a short window after your broker sends an order in which the provider can still accept or reject it at the quoted price.

A rejection can reach you as a requote or a fill at a different price, which the slippage lesson explains.

How can you check your broker's prices?

Most brokers do not publish their provider list, but you can test the result yourself:

• Compare bid and ask on two brokers' platforms at the same moment, on several pairs and at several times of day.
• Watch the spread during a news release and at rollover as well as in quiet hours.
• Read the broker's order execution policy for how it sources prices and whether it adds a markup.
• Check published spread data, such as the spread comparison, and note when it was measured.

How your orders are filled against these prices is the subject of the next lesson, how to judge a broker's order execution.