Liquidity Provider
The counterparty filling your orders — a bank, hedge fund, or in many prop firm cases, the firm itself on a simulated book.
Definition
A liquidity provider (LP) is the entity that fills trader orders. In live markets, LPs are major banks, prime brokers, and hedge funds that post continuous bid/ask quotes across thousands of instruments. Brokers and prop firms aggregate LP feeds into a single composite price stream their traders see. The distinction between an 'A-book' and 'B-book' firm matters: A-book firms pass trader orders through to real LPs (the firm takes no market exposure); B-book firms internalize the order flow, taking the opposite side of trader positions on a simulated basis and paying wins/losses from their own balance sheet. Most retail prop firms run primarily B-book on funded accounts.
Example
Why It Matters
For prop traders, the LP question collapses into one practical issue: can the firm actually pay large winning traders? A-book firms have a live counterparty for every payout — the winning trade was hedged into the market. B-book firms pay from their general balance sheet, funded by challenge fees. This is why real-money-funded firms like Topstep and The 5ers are structurally more robust than pure-simulated firms: the payout source is independent of challenge-fee revenue. The LP arrangement rarely affects fills on a trade-by-trade basis, but it determines whether the firm can pay over the long run.