The spot Forex market, or the cash market, is certainly the most liquid market in the world. Of course, with such incredible volume comes incredible liquidity. To seasoned traders this means one thing: better execution.

An investment market with lacking liquidity, or a lack of buyers and sellers at certain times, is often the demise of traders who need in or out of the market without delay.

The global network of governments, banks, corporations, hedge funds, and individual traders that collectively drive the Forex market, are in essence, also driving the world’s largest network of liquidity. Such high trade volume works to ensure trade execution and the stability of prices, regardless of the time of day.

Equities traders, on the other hand, are more susceptible to liquidity risk and are subject to potentially wider dealing spreads and larger price movements. Liquidity in the equities market really does pale in comparison to that of the Forex market.

One thing to keep in mind about liquidity is that Forex trading is not equally liquid at all time of the day, and there are certainly times of day that generate more volume than others.  This is because the market follows the sun around the world, so relative trades take place literally all day and night.  This fact can often be used to the advantage of an experienced or knowledgeable trader.

When volume is lower, and liquidity is proportionately less, market moves are more suspect and require greater caution when deciding to execute trades.  Such times are notorious for false “breakouts” (movements) and can lead to unexpected results.