🧱 Basics·intermediate

Liquidity

How easily you can buy or sell an asset without moving its price — high liquidity means tight spreads and instant fills.

Liquidity is the depth of buyers and sellers waiting at every price level. A liquid market has thousands of orders stacked at every level, so you can buy or sell big size without pushing the price. An illiquid market has thin order books — your order itself moves the market. Forex is the most liquid market in the world. EUR/USD trades $6+ trillion a day, which means you can place a 10-lot order during London and barely move price. Compare that to a small-cap stock where a 10,000-share order might move price 2%. Liquidity changes by the hour. Forex peaks during the London-New York overlap (8am-12pm NY) and bottoms during the Asian afternoon. The same pair can have a 0.5-pip spread at 9am NY and a 3-pip spread at 4am NY.

Real trade example

EUR/USD's average spread during the Aug 2024 summer doldrums was 0.7 pips. The same week's spread during the Asian session midweek averaged 1.4 pips — double, for the same pair, just because of liquidity drying up.

Related terms

Spread

beginner

The difference between the buy (ask) and sell (bid) price — your cost of entering a trade.

Slippage

intermediate

The difference between the price you expected to get on an order and the price you actually got — usually worse.

Trading Session

beginner

One of the four main daily time windows when a major forex center is open — Sydney, Tokyo, London, or New York.

Tick

intermediate

The smallest possible price change for a given instrument — one tick is the minimum increment a price can move.

Market Order

beginner

An order to buy or sell immediately at the current market price — instant execution, no waiting.

Minor Pair

intermediate

A forex pair made up of two major currencies that does NOT include the US dollar — like EUR/GBP or AUD/JPY.

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