Forex liquidity strategy.
You probably came to this blog because you wanted to know more about forex and liquidity.
Then you have come to the right place because in this blog I will try to explain as much as possible about this subject.
Let’s start with the fact that liquidity is not the same as volatility.
I often hear that traders sometimes make this mistake.
A liquid currency is an asset that can be exchanged very quickly for another type of asset.
In a liquid market we will often find many buyers and sellers and we will also see that the spread is very small on these pairs.
But as soon as some important news is published, buyers or sellers disappear from the market, and the currency changes from liquid to volatile.
Using liquidity and volatility in your strategy.
The liquidity of one currency measures the possibility of exchanging rapidly one currency unit for another.
And the faster this can be done, the more liquid a currency unit is.
Let’s just say that currencies that are more “exchangeable” are often more liquid.
The lower the country’s share of the global economic space, the greater the “regulation” of the domestic market, and the manual control of the economy, the lower the liquidity of the currency.
Let me give you a good example of exactly what I mean.
Suppose you have EUROS then you will probably quickly find someone who is willing to exchange with you for, for example, US Dollars.
And that’s because both these currencies are widely used.
So we can also say that the EURO and the US Dollar are very liquid pairs.
Now let’s get to the MXN Peso.
Because suppose you want to exchange this currency, you probably won’t succeed so quickly.
You will probably only be able to exchange these for a very low price.
And this is what we call low liquidity.
I think you now understand a bit what liquidity exactly is and what it means.
And don’t forget High liquidity does not mean high volatility.
A high-liquidity market is characterized by smooth movement, while in a low-liquidity market the shares of large individual players can bring chaos to the movement.
Liquidity on Forex.
There are several factors that liquidity in forex pairs depends on.
I will name a few for you below.
Also, the trading session can play a big role in the liquidity of the market.
For example, USD Pairs show the most liquidity when New York is open.
And the Yen again when the Asian is open.
News and holidays.
The news or, for example, certain important holidays in certain countries can also do a lot to the liquidity of a forex pair.
To give an example during certain holidays we see very little volume back on the market because many banks and institutions are closed.
I think you know most of it by now and I have also told the most important in this blog.
You can therefore very well include liquidity in your trading strategy.
Actually, this is just very clever.
I mean you don’t want to end up in a market where there is no movement at all or almost no movement?
We prefer good liquidity to trade.
And it is therefore really advisable to pay attention to liquidity while trading.
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