Liquidity When Trading on Forex
You probably heard such phrases “Trade the most liquid assets” or “The broker provides liquidity at the maximum level”.
Why do we need this liquidity and on which of the indicators of trading it has the greatest impact?
Liquidity is the demand or popularity of a particular exchange asset, the rate at which it can be translated into money at the lowest cost and at the best price.That is, if you have US dollars, then you can sell them even at night, but with the Chinese Yuan will have to tinker.
There are two aspects of liquidity: The liquidity of the asset itself and the so-called temporary liquidity in trading,
both of these indicators should be taken into account.
Temporary: When the asset is most popular.
As a rule, the highest demand is observed when the trading session coincides with the time of the financial institutions
of the country issuing one or another currency into circulation.
US dollar, American session, Euro, respectively, European.
The size of the spread: As a rule, the more popular the currency pair, the lower the size of the spread, with the drop in liquidity there is always an increase in commissions.
it’s no secret that the broadest spread on holiday and pre-holiday days.
To verify this statement is simple, the most popular currency pair at the moment is EUR/USD, while the spread on it sometimes drops to 0.1 points.
Trend analysis: Usually with a large number of transactions, there is a stable trend and vice versa, the weakening of demand (supply) always leads to a decrease in activity and a change in trend.
Quite simply, you need to catch the time of the highest liquidity and enter the market, as a result, you open a deal with the smallest spread and there is a hope that the trend will keep its direction for some time.