Forex Liquidity Indicator: the definition

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What is the Forex Liquidity Indicator

Forex has the biggest liquidity among the financial markets. The reason is simple: it works with the fiat currencies as the most liquid assets. Therefore, traders/investors can immediately buy or sell them at the market rate. But users need to learn more about liquidity since it’s essential how to start a Forex business. How to understand what liquidity is, and are fiat assets always liquid?

Liquidity and Forex brokers

When it comes to Forex liquidity, it’s considered a depth of the order book provided by brokerage companies. When they decide to work without a liquidity aggregator, orders for many currency pairs are not filled automatically, and traders/investors face losses.

Forex prime brokers prefer to cooperate with trustworthy LPs that connect their order books to the biggest banks and hedge funds (Credit Suisse, Goldman Sachs, JP Morgan, etc.). It allows the execution of orders for all trading pairs immediately.

Liquidity is one of the core aspects for both retail and institutional traders; this is why there are dozens of instruments for monitoring the liquidity level on the high-end White Label trading platforms.

What is a liquidity indicator in the FX sphere?

You already know that analytical tools help to predict further price change. At the same time, skilled market players also consider the demand/supply metrics.

These numbers reveal the primary levels of liquidity and pools that occur in the Forex market close to the exceptional price levels. A set of order types generates the liquidity of a specific asset there; this is why White Label FX institutional traders prefer to drive quotes into the support and resistance price levels, creating the new liquidity levels. When those levels are static for a long time, the highest liquidity is generated above and below.
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When the asset’s price chart disclose the growing liquidity, it becomes a target for market makers. There is no question that quotes will reach that level. MetaTrader 4 are White Label Forex solutions that offer to use liquidity indicators integrated by the vast majority of brokers.

Here is the main advice for traders on how to monitor liquidity:

  • Look at the liquidity levels because they will attract the rate at any time.
  • Never place orders in the opposite direction to the liquidity level.
  • When the price moves to a specific level, there is a high chance of crossing that line.
  • When the price reaches a support or resistance price level, it may continue with a trend reversal. The reason is simple: market makers are not interested in further price movements.

Following this guidance, you will make more precise price predictions.

Why is it essential to partner with a reliable FX liquidity provider

Liquidity aggregators and liquidity indicators have different natures. LPs are charged with quickly filling Bid and Ask orders, while the indicator shows how major participants are interested in a specific asset.

This is why business owners who plan to start a cryptocurrency business or an FX broker must partner with Level 1 liquidity providers. Connecting their order books to the most prominent banks and funds, they cut the spread and reduce the risk of price gaps.
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