Why is liquidity important?

Today I want to discuss with you guys why it is important to trade with a forex broker which is liquid. Just about every forex broker now advertises tight spreads, sometimes as low as 0.0 to 0.2 pips on the most traded currency pairs like the EURUSD. This is great from a marketing perspective, but when you are looking for a forex broker you need to be more informed than a number advertised on the internet.

What you will face in most cases, there are exceptions such as Paxforex, is that you will never be able to trade with those tight spreads. They are used for marketing purposes and in order to lure a deposit from you. When you start trading there you may never even see those spreads in your trading platform or you will see them and when you enter your trades you will see re-quotes after re-quotes.

This is because your forex broker is not liquid and does not have the ability to fill your orders or bring them to the market at those spreads. In the worst case your forex broker manipulates the rates you see which is a troubling sign. Re-quotes are one of the most annoying interference forex traders can face from their trading platform and a solid forex broker will have very limited to no re-quotes at all.

Another problem which arises from a forex broker who is not liquid is an increase in slippage which can lead to heavy and unexpected losses for the forex trader. Slippage occurs during an increase in volatility. A good forex broker will rarely show any slippage and when there is some it will be very marginal. The reason behind this is that a liquid forex broker has the ability to fill your orders and during high volatility more and more orders flood the computer systems. A liquid forex broker can fill your orders.

Why is liquidity important?

Liquidity is important because it ensures that your orders are filled at the price you enter and with the spreads you were advertised. It eliminates re-quotes and reduces slippage. As a combination your profits will be much higher with a liquid forex broker than with one who lacks liquidity. Check out Paxforex in order to trade with a liquid forex broker.