In theory that’s how it’s supposed to function. As in the position is floated out for the best bid/ask spread, as is demonstrated in this screenshot of an FX Aggregator (FXall)
source: Foreign Exchange Operations - David DeRosa (2014)
The reality for retail clients may differ because we are getting bid/ask quotes from most likely from one source (our chart provider). There’s a likelihood we are already set up with one liquidity provider (LP), even if the broker advertises that they have access to 20+ LPs.
How market forces work in this instance is that large volume retail clients will hunt for the best broker with the best liquidity providers, which should force FX brokers to source more competitive LPs, which in turn should keep LPs offering competitively lower prices.
For large MNCs & institutions there are aggregators, like FXall, which they use for the risk management & hedging. They don’t just rely on one or two LPs for their prices. This series of videos from Deutchbank (one of the largest LPs out there) highlight how competition among LPs affect prices.