forex

Reviewed by James Stanley, Nov. 24, 2021 As a trader gets started in forex trading, one of the first advantages they’re likely to come across is how much liquidity the forex market offers over other markets. The latest figures are roughly $5.1 trillion in daily traded volume as per the Bank of International Settlements triennial report of 2016. Forex liquidity allows for ease of trade, making the market popular among traders. However, certain variances in the FX market need to be taken into consideration for liquidity purposes. This article will explain the concept of forex liquidity as well as liquidity risk, ultimately seeking to provide an overall understanding of how liquidity affects trading. WHAT IS LIQUIDITY AND WHY IS IT IMPORTANT? Liquidity in the forex market is by definition, the ability of a currency pair to be traded (bought/sold) on demand. When you’re trading major currency pairs, you’re trading a market that is exceedingly liquid. However, you are trading based on the available liquidity of financial institutions which get you in or out of the trade (currency pair) of your choosing.