Forex Glossary · Market

What is Liquidity?

Definition

The depth of buyers and sellers in a market — high liquidity = tight spreads, easy fills; low liquidity = wide spreads, slippage.

Also called:market liquidityliquidity provider

Liquidity describes how easily an asset can be bought or sold without significantly moving the price. Forex is the most liquid market in the world — $7+ trillion daily volume — but liquidity within forex varies by pair, session, and time of day.

Most liquid: EURUSD, USDJPY, GBPUSD, AUDUSD during London-NY overlap (13:00-17:00 GMT). Liquidity drops on Asian open (no major macro centers active) and during weekends.

Liquidity providers (LPs) are the Tier-1 banks (JPMorgan, UBS, Citi, Goldman, Deutsche), prime brokers, and inter-bank ECNs that quote bid/ask prices to retail brokers. The number of LPs a broker connects to is a quality signal — top brokers list 15-30+ LPs. More LPs = tighter aggregated spread (the broker picks the best LP for each trade).

More Market terms

Pip

The smallest standardized price move on a forex pair — 0.0001 on most pairs, 0.01 on JPY pairs.

Volatility

The magnitude of price changes over time — measured most commonly as the standard deviation of daily returns.

Trading Session

One of four major forex trading windows defined by financial center business hours — Sydney, Tokyo, London, New York.

Fundamental Analysis

Analysis of economic data, central bank policy, and macro events to predict currency movements — the macro complement to technical analysis.

What is Liquidity?

More Market terms

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