My friend is using a strategy consisting of trading only during extreme volatile situations, such as NFP. Right now, he has a couple grands and this strategy works perfectly.
However, as his trading capital increases, he also wonders if him alone could really see the situation where his broker starts to lack liquidity for his order during this kind of situation.
My point is: Although volatile news releases could see a lack of liquidity, but since this is the most liquid market in the world, the liquidity could still be pretty decent for one single retail trader.
Although there is no true answer to this question, can you give me a very approximative trading size beginning to which we need to mind the possible lack of liquidity in volatile news realeases?
ex: number of lots traded in these situatinos?
Again, no good answer exists in this kind of situation. Any kind of help is welcomed.
Hmm, I don’t see a lot of traders minding liquidity before, especially since many forex traders trade around news releases. Heck, not even central banks can influence price action, that’s how liquid the forex market is. Maybe your friend is used to trading stocks?
Don’t worry, unless your friend is George Soros he/she isn’t likely to run out of liquidity
Well, I know that the entire Forex market is certainly liquid enough for any retail traders under any circumstance. However, the broker we are trading with might have a limited liquidity under volatile circumstances.
For example, he called Axitrader and learned that they can ensure under most volatile releases the liquidity of 100 lots per pair.
I guess that he simply has to get another broker if he trades more lol.
A couple of grand is honestly nothing in trading. Its like saying you wonder if five drops of water will cause a tidal wave. It simply does not matter in a market where the daily turnover is approaching six trillion per day. Even a bucket shop outlet should be able to provide liquidity for a few grand of trading capital while you are 100% sure not to struggle with any decent broker.
"However, as his trading capital increases, he also wonders if him alone could really see the situation where his broker starts to lack liquidity for his order during this kind of situation.
My point is: Although volatile news releases could see a lack of liquidity, but since this is the most liquid market in the world, the liquidity could still be pretty decent for one single retail trader."
During volatile news releases like the NFP, the institutional market makers start to pull their quotes and the majority of large buy side market participants (hedge funds, asset managers, corporations looking to hedge etc…) pull their orders from the market around the current bid/offer, in order to not take unnecessary risk of getting filled at unfavorable prices.
Although the FX market is one of the most liquid in the world, you would be suprised to discover that at times of major news events, how dry the market can actually be - which is why you may see 30-50pips spreads on EURUSD and huge exaggerated moves in micro seconds. These are typically hedge funds gunning for stops at obvious places which are major S/R levels/daily high lows etc… As no one except the speculator is willing to trade at these times, it makes it alot easier for a well capitalised trader to move the market on little volume.
The reason your friends broker has told him that they can only guarantee to fill his volume of 100lots (10million) during news is because of the credit lines and liquidity the broker is receiving from their bank or LP, who can only fulfill a certain amount - due to the lack of available participants willing to make a market.
If your friend is really trading 100lot clips, he should open an account with one of the major Banks who will be more than happy to takes his business with a $500,000 deposit, and he can speak directly to the dealers and get it from the horses mouth what size they can fill during news.
