Forex Liquidity and Transparency

Liquidity

Liquidity, the term used to qualitatively assess how easily trades can be entered and exited, is of prime importance to all traders. Trading essentially involves two transactions: the opening of a position, followed by the subsequent closing of that position. Liquidity, which is highly correlated to volume, assesses how easily traders can enter and exit positions.

A liquid market is a market where participants can rapidly execute large volume transactions with little impact on prices. Markets that have high daily turnover generally offer the most competitive prices and the best execution.

Traders participating in illiquid markets will experience delays and market order fills could potentially be at a very different price from the market rate when the order was initially placed (slippage). Furthermore traders may have difficulty in exiting positions, therefore affecting the true cost of the trade. Ultimately this will create substantial barriers to clearing profitable trades.

Liquidity is an identifying mark of spot Forex trading. In fact, hundreds of banks and millions of individuals trade daily and nearly $4 trillion is exchanged everyday! This makes Forex the the largest and most liquid market in the world. As a result, you can get in and out of a Forex trade in seconds.

Market Transparency

Market transparency is usually defined as the ability of market participants to observe the information in the trading process. Informed traders are better off while uninformed traders become worse off, because markets can be exploited by those with private information.

A key concept in market transparency is the ability to trade from live, executable prices. Markets that do not offer prices that are executable are frustrating for traders. There is typically a delayed fill and the fill price may not always be at the same rate as the market rate when the order was initially placed.

The spot Forex market has always been on the cutting edge of the technology revolution, making trading much more efficient, and simply a better choice for active traders. Price transparency is very high in the Forex market. When you trade with a reputable Forex broker, you will enjoy access to streaming, executable prices.

Forex – the best market in the world.

The spot Forex market is an over-achiever in providing traders with superior obliquity and transparency.

And by Forex, we never mean binary options. Many of our clients ask us if our Forex Signals are compatible with binary options, and the answer is no. Why? This will be discussed in a future article.