FX Liquidity
FX Liquidity Explained:
- What is FX liquidity?
- High and low FX liquidity
- Benefits of a liquid FX market
- What factors impact FX liquidity?
- FX liquidity providers
What is FX liquidity?
In the foreign exchange market, liquidity pertains to a currency pair's ability to be bought and sold without causing a significant change in its exchange rate.
High and low FX liquidity
High Liquidity
A currency pair is said to have a high level of liquidity when it is easily bought or sold without significantly impacting its price and there is a significant amount of trading volume for that pair.
Low liquidity
A currency pair is said to have low levels of liquidity when there is little demand and therefore little trading activity, as a result, the exchange rate is likely to be impacted when a large volume of currency is bought or sold.
Benefits of a liquid FX market
- Lower bid-offer spread – High demand often means the Buy and Ask price of an asset are much closer.
- Less market impact – high liquidity means the currency can be bought or sold in large volume without significantly impacting the price.
What factors impact FX liquidity?
- Trading volume – The higher the trading volume of currency pairs such as GBP/USD, the more liquid the market is.
- Market participants –Higher levels of activity amongst banks, hedge funds, FX service providers etc.
- Geographics – Location can cause fluctuations in the market, due to the various time zones throughout the world.
- Regulations – New regulations enforced can impact trading volumes, causing liquidity of the market to fluctuate.
FX liquidity providers
Here at MillTechFX, our clients have access to competitive FX rates from up to 15 tier 1 liquidity providers, ensuring they achieve best execution on FX spots to forwards.
Harnessing the decades of experience of Millenium Global, one of the largest currency management groups, we are able to provide funds and corporates with an streamlined end-to-end FX service with transparency at the forefront.
Related terms:
What is MillTechFX?
We provide access to a transparent marketplace for comparative FX execution from up to 15+ counterparty banks, while harnessing a unique and significant pricing efficiency for our clients and reducing their operational burden. In addition, MillTechFX provides clients with full transparency of execution via independent TCA reporting.
