What Is Liquidity?

• This refers to how active a market is.
• To determine how many traders are actively trading and the total volume they’re trading.

One reason the foreign exchange market is so liquid is that it is tradable 24 hours a day during weekdays and also a very deep market, with nearly $6 trillion turnovers each day.

What Is Volatility?

• To measure how drastically a market’s prices change.
• Lower liquidity: results in a more volatile market and cause prices to change drastically
• Higher liquidity: creates a less volatile market in which prices don’t fluctuate as drastically.

A market’s liquidity has a big impact on how volatile the market’s prices are. Forex market tends to move in smaller increments because of their high liquidity results in lower volatility. However, drastic and sudden movements are also possible in the forex market. Since currencies are affected by so many political, economic, and social events that cause prices to become volatile. Traders should be mindful of current events and keep up on financial news in order to find potential profit and to better avoid potential loss.