Liquidity and potential

  • Jun 25 2021
  • by
  • Analyst AZA
Liquidity and potential

Liquidity and potential in the international market forex

Liquidity in the forex market is a kind of opportunity for a relatively short period to buy or sell a financial instrument or asset at its present value. In other words, this term means the word «demand». In the foreign exchange market, this characteristic largely depends on the assets traded on the market - funds, which, in turn, can be both highly liquid and have low liquidity. As for the working day, during its duration, the liquidity is distributed unevenly, and first of all, it depends on the time of the activity of the exchange traders. As a rule, for one trading day, a strong level of liquidity can be seen at the beginning of trading sessions in the world's leading markets, as well as after the publication of important events or standard news, as well as in the last 30 minutes of market activity. As for assets, all instruments can be divided into liquid and illiquid.

The liquid is considered to be those that are fairly easy to convert into capital, while the conversion into money occurs without loss of value. The group of illiquid instruments includes those instruments that are rather difficult to transform into cash without losing their value. At the moment when important events for a fixed asset come out, you can observe a rather noticeable drop in liquidity. If the liquidity of the exchange is too low, slippage in values ​​can be observed. In such a situation, the trader opens an operation at a price that differs, for the worse, from the market price. In other words, a trader opens a deal at one price, and this position does not have the required amount of response (return offer) from other traders. As a result, the price rushes to a different level - the stage that may not be suitable for the players.

 It is also worth it because the rate and the very amount of liquidity depend on their suppliers. These are large-scale world banks, huge funds - those organizations that have access to the foreign exchange market. The supplier of «demand» is a kind of link - the parameter that connects most of the exchange players and brokerage companies, whose common work has a positive effect on market liquidity. Possessing and managing huge cash flows, liquidity providers can at any time meet the needs of traders to purchase or sell an asset. Liquidity providers are not only the leading links between brokers and traders: such a financial algorithm is well complemented by various financial institutions (funds, corporations, holdings). These financial institutions are created through prices, events, and quotes for companies that are at a lower level (such as brokers and dealing centers). It is logical that for many players the quite expected question arises: how can the liquidity of an asset (currency pair) of the market be determined? The liquidity level is calculated employing transactions - the number of transactions that were made by the depositors. On Forex, the main group can be distinguished - the most demanded foreign exchange instruments. Their share in the trade turnover of operations is approximately 85%.

Among the leading couples are the following: -euro/dollar - the most popular currency pair, which includes world monetary units. Almost a quarter of all transactions are made by this pair. -dollar/yen - the popularity of this instrument is provided by dynamic transnational trade. - British pound/dollar - the high liquidity of the pair is primarily due to the status of London: the British capital is considered the largest financial center in the world. Consequently, the interest in the currency is very high. Some several financial institutions and issues affect the liquidity of the forex exchange: 1) those state market organizations that carry out monetary activities with its help; 2) the amount of liquidity in the forex market largely depends on the work of the exchange - the market operates for 24 hours, and is also influenced by the work of the trading sessions themselves;

All this makes it possible to trade without paying attention to the difference in time (time zones), as well as the borders of countries; 3) huge amounts of money are traded on the currency exchange, and the volumes of the minimum lots are distinguished by their impressiveness; 4) and finally, the fact that the Forex commodity - money by default is liquid. The liquidity indicator affects 1) the size of the commission, or rather the size of the spread. As a rule, the more famous and popular a currency pair is, the lower the spread will be. 2) with a decrease in liquidity, costs increase, and often, a widespread is set before and during the holidays; 3) trend analysis: as a rule, with a huge number of operations, the trend is persistent. Conversely, if supply (or demand) falls, activity always falls, and therefore the market trend corrects. From a practical point of view, it is quite easy to use the market demand: you need to catch the right moment - the time of the highest liquidity and boldly enter the exchange. Guided by this principle, our trading operation will be opened with a small spread, and it will be possible that the trend direction will continue for a certain period.

Along with this, a decrease in liquidity and an increase in the spread may indicate an imminent trend change. It is also worth noting that the international currency exchange Forex is an over-the-counter market, which provides the opportunity to trade 24 hours, 5 days a week, from Monday to Friday, and the increased liquidity further stimulates the interest of its participants - both beginners and professionals.

institutions and issues affect the liquidity of the forex exchange: 1) those state market organizations that carry out monetary activities with its help; 2) the amount of liquidity in the forex market largely depends on the work of the exchange - the market operates for 24 hours, and is also influenced by the work of the trading sessions themselves; All this makes it possible to trade without paying attention to the difference in time (time zones), as well as the borders of countries; 3) huge amounts of money are traded on the currency exchange, and the volumes of the minimum lots are distinguished by their impressiveness; 4) and finally, the fact that the Forex commodity - money by default is liquid. The liquidity indicator affects 1) the size of the commission, or rather the size of the spread. As a rule, the more famous and popular a currency pair is, the lower the spread will be. 2) with a decrease in liquidity, costs increase, and often, a widespread is set before and during the holidays; 3) trend analysis: as a rule, with a huge number of operations, the trend is persistent. Conversely, if supply (or demand) falls, activity always falls, and therefore the market trend corrects.
From a practical point of view, it is quite easy to use the market demand: you need to catch the right moment - the time of the highest liquidity and boldly enter the exchange. Guided by this principle, our trading operation will be opened with a small spread, and it will be possible that the trend direction will continue for a certain period. Along with this, a decrease in liquidity and an increase in the spread may indicate an imminent trend change. It is also worth noting that the international currency exchange Forex is an over-the-counter market, which provides the opportunity to trade 24 hours, 5 days a week, from Monday to Friday, and the increased liquidity further stimulates the interest of its participants - both beginners and professionals.

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Liquidity in the forex market is a kind of opportunity for a relatively short period to buy or sell a financial instrument or asset at its present value.

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