Liquidity
Liquidity is how easily an asset trades without moving price - the deepest liquidity lives in major forex pairs during overlapping sessions.
Liquidity is how easily an asset trades without moving price. The majors during London-New York overlap are the deepest, and thin liquidity is where spreads widen and stops slip.
Liquidity is the ease with which an asset can be bought or sold without significantly affecting its price. Forex is the most liquid market in the world, but liquidity varies by pair, session and event: EUR/USD during London-New York overlap is deep; exotics at 3am are not. Liquidity shows up as tight spreads, large size at the best prices and small slippage. Thin liquidity is where spreads widen, stops slip and fake breakouts happen.
How It Works
- Deep books with tight spreads and large size at the best prices
- Best in majors during session overlaps
- Thins on weekends, holidays, news and in exotics
Trading Tips
Trade majors in overlap sessions for the tightest costs
Thin liquidity produces whipsaws and slippage - size down when it is missing
Check spread behaviour before trading an exotic or a quiet session
Liquidity Example
Say you trade one lot of EUR/USD during the London-New York overlap: fills are instant at a fraction of a pip. Try an exotic pair at midnight and the same order costs several pips with visible slippage, because nobody is quoting size.
How Traders Use Liquidity
Trade when the liquidity is there, not when your schedule says so. Deep sessions forgive bigger size. Thin hours punish it. If spreads suddenly triple, that is the market telling you to wait.
Related Terms
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