liquidity in FOREX

[jmann]

which part of forex has the largest liquidity; swaps, forwards, spots?

which are the most traded currency pairs?

do all pairs have the same volatility as % basis?

do certain pairs trend better than some others?

anyone information is appreciated.
thanks.

[mishak]

spot

majors

no

non-pegged currencies trend better

[q827]

What's a non-pegged currency?

[Gamma_Jammer]

Originally Posted by mishak

spot

majors

no

non-pegged currencies trend better

Lol Mish - slightly mischievous answer. And actually in terms of liquidity not strictly correct. Swap liquidity is in fact far deeper than directional liquidity (i.e. spot and forwards). No bank will bat an eyelid when you ask them for an even swap in EUR/USD in EUR 100 Million, but they will definitely widen their spread from normal market size if you ask them for straight spot in that size.

So regardless of whether you define liquidity in terms of average daily market size, or impact of a given sized trade on the price, swaps are far deeper than any other forex market.

GJ

[mishak]

Originally Posted by Gamma_Jammer

So regardless of whether you define liquidity in terms of average daily market size, or impact of a given sized trade on the price, swaps are far deeper than any other forex market.

GJ, you make your point, I agree.

Myself take the point of view of MoneyTec reader. I guess most of them do not have open 1MIO credit lines with two banks. So, trading 1M EUR/USD swaps is really difficult for them. As far as I know, internet based forex brokers do not provide currency swap quotes - they just take you from one or another side.
Therefore, currency swaps trading is out of reach for our "average" Forum reader, so I would call this "less liquid" than spot.

to q827
pegged - it is the currency for which the local goverment/central bank has set max possible limits to change against some major currency (usually USD). Chinese yuan is a sample of pegged currency (at the moment of writing) - smth around 8.2

[Gamma_Jammer]

Originally Posted by mishak

GJ, you make your point, I agree.

Myself take the point of view of MoneyTec reader. I guess most of them do not have open 1MIO credit lines with two banks. So, trading 1M EUR/USD swaps is really difficult for them. As far as I know, internet based forex brokers do not provide currency swap quotes - they just take you from one or another side.
Therefore, currency swaps trading is out of reach for our "average" Forum reader, so I would call this "less liquid" than spot.

Mishak - that's not what liquidity means at all. The definition of liquidity has nothing to do with how easy it is to get yourself in a position to trade (i.e. open an account). It is 100% to do with how the market reacts to the trades you do.

What you are talking about is actually accessibility, not liquidity.

GJ

[q827]

Investopedia.com defines liquidity as "The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity."

So I think in a more technical sense GJ is right. But in a looser sense Mishak (and many others) can be right too if u consider accessibility a characteristic of liquidity.

[Gamma_Jammer]

Originally Posted by q827

Investopedia.com defines liquidity as "The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity."

So I think in a more technical sense GJ is right. But in a looser sense Mishak (and many others) can be right too if u consider accessibility a characteristic of liquidity.

That would only be true if accessibility issues prohibited people from actually contributing to the market (and here I'm talking about proper size, not a few retail traders trading $50K a pop).

So in some emerging markets, accessibility and liquidity are inextricably linked, but in EUR/USD swaps for example, I still say that liquidity means exactly what I was talking about earlier (confirmed by investopaedia).

The fact that retail traders can't usually trade swaps makes zero difference to the amount you can move without it affecting the price. I had to execute a swap the other day in about $300M each leg, and the bank on the other end of the phone didn't bat an eyelid. The price I was quoted was insanely tight, and they could have probably done more if necessary.

If I'm nitpicking I apologise, but I hope the way I've described it explains where I'm coming from.

GJ