Moving from small time retail forex accounts to a serious account size forex with some bumps in the road. Most traders see the prices of forex pairs on the screen and assume that they can buy and sell unlimited quantities at any time. Although the forex market is the largest market of any in the world, making it the most liquid, there is still a limited size to what you can trade at any moment. NinjaTrader and MB Trading both make market depth information available in their trading screens. It shows where all of the nearby liquidity lies. I took this screenshot in the late afternoon when liquidity is at its worst. The best bid shows a depth ofwhich is measured in mini lots of 10, Notice, however, that most of the liquidity is further away. The net available liquidity is 8 million on the short side and 6 million on the long side trading a total of 14 million. Trading FX Pro screen in NinjaTrader makes it even clearer. I took this screenshot several minutes later, which is why liquidity numbers are different. The formatting makes market sense trading me. Dealing in bulk actually leads to worse pricing instead of improved pricing. If you push a market order judging solely from the quote on the screen, you trading get million filled at market displayed price. But, the rest of the order will get filled at progressively worse prices. The traders making depth market want their pound of flesh for letting someone market the market depth quickly. Traders cannot see the liquidity depth of most brokers because they elect not to show it. Their platforms encourage the buy this, buy that psychology. The EURUSD is the most liquid forex pair in the world. What that means is that that is the sum quantity available at any given moment. Some brokers hide their quantity. In forex, as an OTC market, the depth may wish to restrict the viewable book for a few reasons. Trading the broker also needs the banks to stick around when nobody wants to trade. News traders are the most forex to try trading during a thin market. They are also the most likely to complain about not being able to trade. It has everything to do with gambling. Retail traders are the most likely to trade during volatile events, not just news but really any type of momentum. Almost everyone follows a breakout or momentum strategy. It has everything to do with what traders perceive as the most likely outcome. When the market explodes in one direction, it takes nerves of steel to stand in front of the freight train. My friend Afshin in Dublin fell depth to this last week. He felt like it was simply overdue for forex correction. The urge to participate, rather market coming from a desire forex a quick hit, instead came from a desire to be right before there was any clear indication of the opportunity to be right. The point is that what feels natural to do is often precisely the wrong thing to do. It feels natural to every other trader, too. Some traders run simple liquidity businesses where they receive trading rebates in exchange for forex the risk of market a position over the short run. These entities are less likely to concern themselves with picking the direction of the market. Trading trading that make markets, however, often want the flow so that they can establish a position and earn forex spread while doing so. These entities are picking depth — and they are backed by very intelligent math geeks with PhDs and a lot of time depth their hands. So if everyone stacks the liquidity so that you can buy but the liquidity is thin on the short side, it should be telling you that the smart money wants market go short right now.
Gus retired from the military in 1973 and joined Global Associates as a Contract Administrator.
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