Hi community, I just finished the school of Pipsology and i’m going through it again.
In preschool they talk about liquidity:
"The scale of the forex market means that liquidity – the amount of buying and selling volume happening at any given time – is extremely high.
This makes it very easy for anyone to buy and sell currencies.
From the perspective of a trader, liquidity is very important because it determines how easily price can change over a given time period.
A liquid market environment like forex enables huge trading volumes to happen with very little effect on price, or price action."
Forex market size and liquidity
I understand the classic definition of liquidity: how easy it is convert any asset into cash (Example: sneakers are more liquid than a house).
I’m not completely understanding the Forex Definition of liquidity. Is it referring to how easy it is to place a trade (buying/selling) ? is it referring to how much up and down the price can move? Is it referring to how many people are trading at a moment and putting cash into the system?
It might also help to understand what would it look like if Forex was not very liquid? (Any metaphors and comparisons are welcome).