Liquidity

Liquidity is the depth and availability of buy and sell orders for an instrument, determining how much you can trade and how quickly without materially moving the price. Deep liquidity produces tight spreads, reliable fills, and low slippage; thin liquidity does the opposite, with wider spreads and prices that gap. In forex, liquidity is highest in the major pairs and during the busiest session overlaps, and it drains away during off-hours, holidays, and the weekend gap, as well as in exotic pairs at all times. Major news can paradoxically cause both a surge in activity and a momentary collapse in usable liquidity, which is when slippage and spread-widening are worst. Knowing when and where liquidity is thin helps you avoid the conditions that produce the worst execution.

In plain English — Liquidity describes how much buying and selling interest is available at any moment. A highly liquid market has lots of orders close together, so you can trade large size quickly at tight spreads. A thin (illiquid) market has gaps, wider spreads, and prices that jump when bigger orders come through. Forex majors are among the most liquid markets in the world, while exotic pairs and off-hours trading can be much thinner.

EUR/USD during the London–New York overlap is deeply liquid, so spreads are tight and fills are clean. The same pair late on a Friday, or an exotic pair anytime, can show wider spreads and choppier fills.