Forex Liquidity
Forex Liquidity
Forex is the most liquid financial market; traders can take the most direct advantage of having an average daily trading volume of $5.2 trillion per day. Having a high liquidity may be translated for the simplicity of entering into a buy or sell position in the financial market.
Liquidity in the forex market is defined as the ability for a currency or instrument to be bought or sold at that specific instant in the market. It is a fact that forex in general is a very liquid market, but it also depends heavily on which currency pairs you decide to trade.
Benefit of high liquidity
Not all currencies pairs are made equal, thus liquidity levels vary drastically, the more liquid a pair is the lower the price variances will occur when you place a large trade volume. Apart from the potential of not having slippage, gaps usually will not appear on highly liquid currency pairs. The characteristics of a highly liquid pair the price changes will be smoother, if you place pending orders, you can have more confidence the orders will be triggered at the stated price.
High Liquidity Pairs
Most major pairs will be considered to have high liquidity, without a doubt the most popular pair or the most heavily traded pair would be the EUR/USD. Here is the list of the other major pairs which traders can keep in mind to take advantage of high liquidity currency pairs:
- GBP/USD
- USD/JPY
- AUD/USD
- USD/CAD
- USD/CHF
- NZD/USD
Characteristics of Low Liquidity
Opposite of highly liquid currencies, low liquidity currencies refer to currency pairs that are not able to fulfill large order volumes at specific set price, variances in the prices will occur, aka slippage. Exotic or minor currency pairs fulfills this type of characteristic.
Low liquidity pairs will have gaps as much of the market movements will be more chaotic. These market movements may be harder for traders to manage risk, but on the other hand it may also work in a trader’s favor. Due to the low liquidity, since prices will not be smooth, order fills may not be exactly at the asking price of the trader, but rather on the next best price of what is actually available in the market. How could this benefit? If a trader sets a take profit and the markets move on the right side of the trader’s TP, the trader may increase their chances of closing at a better price than what they have originally set on their take profit.
Be sure to consult our professional account managers at MOGA FX for better understanding in the forex market. MOGA offers 24-hour personalized support for all clients.
Disclaimer:
Trading Foreign Exchange Currency Pairs carries a high level of risk to your capital. These derivatives may not be suitable for all investors.