Liquidity is the ability of an asset to turn into money over a certain period of time and at a certain cost. The smaller this gap, and the lower the costs, the more liquid the market and the asset underlying this market are. Why does FOREX have absolute liquidity? Below is a comparison with the markets of ordinary goods and real estate and an example of what determines the liquidity of the market and asset in general.
Number of customers.
Imagine that you are buying and selling apartments (a product that seems to be in high demand). How many customers do you have that you can make a deal with in the current second? Probably none. How much a day? Maybe a few people. In the FOREX market, you can make deals with thousands of serious counterparties around the world — market makers of the market-in a few seconds.
Information security about your product.
When you sell apartments, you are forced to invest in advertising. When you sell some money on FOREX for others, you just need to add your application to the global information flow, all traders in the world will see it. This speed of information transfer reduces costs to a minimum.
Standardization of the asset.
When trading ordinary goods, you need to convey to the potential buyer information about the properties of the product, its price, payment terms, and so on. On FOREX, you do not need to convey information about the product to the consumer — it is almost 100% standardized. Dollars, pounds, and yen in the form of electronic bank account records simply can’t be different. The only thing you will have to do in the real market is exchange payment instructions (account numbers) with the counterparty if this is a one — time transaction and they do not yet know your banking details.
Ease of making deals.
Unlike regular products, a buy-and — sell agreement on the FOREX market can be concluded in a few seconds, since your acceptance (acceptance-consent to payment) of a quote is already considered an agreement with the price and other conditions.
Transportability of the asset.
Unlike ordinary goods, the transportation of which involves a long and expensive delivery to the counterparty, FOREX transfers can be made instantly, since money is electronic records on accounts.
Volume of operations and perfect competition.
The FOREX market refers to markets of perfect competition, where none of the participants, with the exception of monetary authorities, can significantly affect the price. According to calculations, the volumes traded on the interbank money market exceed the volumes of the entire European and American asset markets together and are equal to more than більш 1.5 trillion per day. FOREX (Forex) is really the largest market. For comparison, the largest day in terms of volume on the New York Stock Exchange NYSE was рів 24 billion.
Since the forex market is open 24 hours a day, access to it is possible at any time, unlike exchanges that are open only during business hours, which does not necessarily coincide with your time zone. In FOREX, there are almost no price gaps and slippage, as fundamental news rarely comes out on weekends.
Unlike exchange-traded instruments, the cost of trading on FOREX (Forex) is very low and the spread level is 0.0002 of the transaction volume, which makes trading on Forex more attractive compared to other markets.