Liquidity
Liquidity describes how quickly and easily an asset can be bought or sold without significantly moving its price. Highly liquid markets offer tight spreads and fast execution; illiquid markets can have wide spreads and unpredictable slippage.
An asset is liquid when there are many buyers and sellers active at any given moment. This depth of participation means large trades can be absorbed without dramatically moving the price. Major forex pairs like EUR/USD and USD/JPY are among the most liquid instruments in the world.
Liquidity is not constant — it follows daily and weekly patterns tied to trading sessions. The overlap of the London and New York sessions typically produces the highest forex liquidity. Liquidity dries up over weekends, public holidays, and in the hours around major data releases.
Illiquidity risk is the danger that you cannot exit a position at a fair price when you need to. This is particularly relevant for thinly traded stocks, exotic forex pairs, and some cryptocurrency tokens, where even moderate selling can move the price significantly against you.
Brokers provide liquidity to retail traders by either market-making (quoting their own bid/ask and managing risk internally) or by routing orders to external liquidity providers. ECN/STP brokers are generally considered more transparent because their revenue is not affected by your trading outcome.
TrustFinance highlights liquidity conditions in its broker comparisons and market analysis, noting where execution risk may be elevated.