Matthew K Lee#86

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What is liquidity in forex and why is it essential?

Liquidity refers to the ease of buying and selling currencies without causing large price swings. The forex market is highly liquid, with over $7 trillion traded daily, but liquidity varies by pair and session. Major pairs like EUR/USD have tight spreads, while exotics like USD/TRY are less liquid and more volatile. Institutions secure liquidity through direct access to interbank networks, while retail traders depend on brokers. Benefits: tighter spreads, better execution, and reduced slippage. Risks: low liquidity leads to gaps and erratic moves. Liquidity is the lifeblood of forex—without it, trading efficiency collapses.