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Jeudi 25 Novembre 2021

What is Liquidity and How to Identify It

Liquidity is one of the most important indicators when trading on the international foreign exchange market.

Traders should know all about this parameter before starting a cryptocurrency exchange business. And brokers try to provide maximum liquidity to their clients - this is the ability to buy or sell selected assets at a favorable market price. Also, it is worth paying attention to the execution time of orders - this also affects the concept of liquidity. Let's talk more about this parameter.

The first factor to pay attention to before starting a cryptocurrency business is the presence of several categories and types of liquidity. Let's analyze liquidity using a specific example of the popular markets among traders: Forex and digital assets.

Forex Liquidity and Its Features

The Forex market deals with fiat currencies. Therefore, liquidity is at its maximum here. Not only because it is real money. Also, because you can close the deal instantly.

However, liquidity also depends on which currency pair the trader has chosen. Because some fiat currencies are not popular. And if the broker does not work as large market makers, price slippage may occur. There are four most popular currency pairs today (EUR/USD, USD/JPY, AUD/USD, and USD/CAD). The amount of the transaction with these assets is over 50%. Also, there are 11 more trading pairs, which gives another 49%. As a result, 16 currency pairs provide 99% of the Forex market. Obviously, other options are less liquid.

Of course, liquidity also depends on the specific platform. If the broker acts as a market maker, then the order book contains orders only from registered clients. This means that it may be difficult to execute orders (demand may be greater than supply). In this case, the order execution time increases. This is not only an inconvenience for the trader but also the risk of price slippage and reduced liquidity.

A quality broker chooses a reliable liquidity provider who acts as the ideal intermediary. Liquidity aggregator provides a fast and reliable connection between a trader and large Tier1 market players (hedge funds, large investors, reliable banks, etc.), able to quickly meet demand. This significantly increases the depth of the order book and allows almost any order (even for millions of dollars) to be executed in milliseconds.

Crypto Liquidity and Its Features

The cryptocurrency market is developing rapidly and has high liquidity. Lots of new players are thinking about how to start a cryptocurrency business. And here liquidity is also important.

You can determine the liquidity of the desired digital asset using its daily turnover. For example, about $33 billion worth of Bitcoins are traded in the market every day. At the same time, the liquidity of this asset per day is about 700,000 coins. If we are talking about USDT, then the volume of daily crypto payments is already larger: $75.5 billion. This example allows us to conclude that Tether coins (the fifth most popular cryptocurrency) have more liquidity and attractiveness than the familiar Bitcoin.

Another factor is the liquidity of the broker itself, who decided to create a crypto exchange. Of course, every client strives to do business with the best white label cryptocurrency exchange, so it is important to define this parameter. The liquidity indicator is calculated using a simple formula - you need to divide the total volume of daily trading by the number of markets. This will help us understand the level of liquidity of the segment we are interested in.

B2Broker - Good Liquidity Provider Solution

A broker deciding to create a cryptocurrency exchange must take care of good liquidity. After all, this parameter is important for clients choosing a trading platform. It is necessary to cooperate with quality liquidity providers to create the most attractive conditions for potential clients. B2Broker is a great option to help you create your own crypto exchange. The company offers turnkey solutions, allows you to use convenient and reliable white label cryptocurrency exchange software, and provides round-the-clock professional support. Moreover, B2Broker is a quality liquidity provider and offers solutions for various financial instruments: Forex, cryptocurrency market, stocks, metals, etc. Enter the forex prime brokers segment by partnering with B2Broker.

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