Unlocking the Benefits of Liquidity In Forex Trading

Unlocking the Benefits explained by professional Forex trading experts the “Unlocking the Benefits” FX trading team.

Unlocking the Benefits?

As one gets started in forex trading, one of the first benefits they’re likely to hear is how much liquidity the FX Market offers over other markets. The latest figures are roughly $4 Trillion in daily volume as per the Bank of International Settlements. But what does that mean to you and your trading?

Why Should You Care About Liquidity?

Ask anyone during the 2008 credit crisis who was trying to sell their home what are the benefits of liquidity? Or maybe a stock trader who is on the wrong side of a trade when it’s been announced that the stock they’re shorting is rumored to be acquired by a much larger company at a premium in afterhours trading. These people were at a financial stronghold because they could not exit their trade when they wanted to and were subject to illiquid conditions in the market.

Liquidity by definition is the ability of a valued item to be transferred into currency on demand. When you’re trading currencies or Foreign Exchange, you’re trading a market that is by itself, liquid. However, you are trading based on the available liquidity of financial institutions who get you in or out of the trade of your choosing.

What are the Signs of Liquidity & Illiquidity?

From a trader’s point of view, an illiquid market will have chaotic moves or gaps because the level of buying or selling volume at any one moment can vary greatly. A highly liquid market is also known as a deep market or a smooth market and price action is also smooth. Most traders need and should require a liquid market because it is very hard to manage risk if you’re on the wrong side of a big move in an illiquid market.

Unlocking the Benefits Conclusion

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