What is liquidity and what is its significance? 

Liquidity refers to the availability of a product and ensures market participants have the ability to buy and sell easily.

A liquid market increases the likelihood for finding a counterparty when entering or exiting a trade.

What is volume a measurement of in trading? 

Volume in trading refers to the total number of contracts exchanged between buyers and sellers of a market during trading hours over a given period.

Higher trading volumes are considered more positive than lower trading volumes because they indicate the availability of orders in the market allowing better order execution during the trading session.

What is open interest in the derivatives market? 

Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset.

Open interest equals the total number of bought or sold contracts, not the total of both added together. Increasing open interest represents new or additional money coming into the market while decreasing open interest indicates money flowing out of the market.

Risks and opportunities for corporates and individual investors – Position and risk management 

Risk management is the responsibility of market participants designed to limit risk exposures that specifically applies to the participants financial profile in the market.

The financial profile of a participant may include their role in the financial market or the amount of capital under their responsibility to be managed in the market, and therefore the risk variables that each would need to identify may be unique.

For both corporate and individual investors, the market to trade would be a key variable to clearly state and support with reasons for trading or investing. Reasons for selecting one market over another could include price volatility, liquidity, daily volume traded, size of the minimum price increment, and value of the minimum price increment. Comparing these variables between markets will help decide the suitability and/or risk of each.

For example, if bitcoin (BTC) moves around 1,000 points per day and each point is worth $1, a trader might experience a $1,000 fluctuation in their account balance for one day. Another example is the U.S Dollar / Singapore Dollar (USDSGD), which could move 70 pips or more per day and trading a standard lot size with each pip worth $10, a $700 fluctuation could be expected for one day.

Market participants may also manage their risk through the size of their positions. The larger their position size, the greater is their exposure and the smaller their position size their exposure is lower. Investors should determine the risk that would result from various position sizes and select the size that ensures that their risk limit is not exceeded.

Finally, setting stops with a specified loss amount provides protection if the market does not move in the desired direction. It helps to prevent creating a loss scenario which is larger than an account can handle.


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Editors’ Picks

EUR/USD pierces 1.06, finds lowest bids in a year

EUR/USD pierces 1.06, finds lowest bids in a year

EUR/USD trimmed further into low the side on Tuesday, shedding another third of a percent. Fiber briefly tested below 1.0600 during the day’s market session, and the pair is poised for further losses after a rapid seven-week decline from multi-month highs set just above 1.1200 in September.

EUR/USD News
GBP/USD tumbles lower as losses accelerate

GBP/USD tumbles lower as losses accelerate

GBP/USD lost its footing on Tuesday, shedding almost a full percent after UK labor figures came in mixed, but all Cable traders could focus on was a steeper-than-expected upswing in the UK Unemployment Rate. 

GBP/USD News
USD/JPY sits near its highest level since July, close to 155.00 as traders await US CPI

USD/JPY sits near its highest level since July, close to 155.00 as traders await US CPI

USD/JPY stands firm near its highest level since July 30 amid speculations that a fragile minority government in Japan will make it difficult for the BoJ to tighten its monetary policy further. Moreover, fears that US President-elect Donald Trump might again hit Japan with protectionist trade measures continue to undermine the JPY. 

USD/JPY News

Editors’ Picks

AUD/USD struggles near multi-month low; looks to US CPI for fresh impetus

AUD/USD struggles near multi-month low; looks to US CPI for fresh impetus

AUD/USD languishes near a multi-month low during the Asian session on Wednesday and seems vulnerable amid a bullish USD. Expectations that inflationary import tariffs from US President-elect Donald Trump will push up prices and limit the scope for the Fed to cut rates remain supportive of elevated US bond yields.

AUD/USD News
USD/JPY sits near its highest level since July, close to 155.00 as traders await US CPI

USD/JPY sits near its highest level since July, close to 155.00 as traders await US CPI

USD/JPY stands firm near its highest level since July 30 amid speculations that a fragile minority government in Japan will make it difficult for the BoJ to tighten its monetary policy further. Moreover, fears that US President-elect Donald Trump might again hit Japan with protectionist trade measures continue to undermine the JPY. 

USD/JPY News
Gold price oscillates around $2,600, just above a nearly two-month low ahead of US inflation

Gold price oscillates around $2,600, just above a nearly two-month low ahead of US inflation

Gold price consolidates its recent heavy losses to the lowest level since September 20 as bears opt to pause for a breather ahead of the crucial US CPI report, which will influence Fed rate-cut expectations and provide a fresh impetus. 

Gold News
Ripple could rally 50% following renewed investor interest

Ripple could rally 50% following renewed investor interest

Ripple's XRP rallied nearly 20% on Tuesday, defying the correction seen in Bitcoin and Ethereum as investors seem to be flocking toward the remittance-based token. XRP could rally nearly 50% if it sustains a firm close above the neckline resistance of an inverted head and shoulders pattern.

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Five fundamentals: Fallout from the US election, inflation, and a timely speech from Powell stand out

Five fundamentals: Fallout from the US election, inflation, and a timely speech from Powell stand out Premium

What a week – the US election lived up to their hype, at least when it comes to market volatility. There is no time to rest, with politics, geopolitics, and economic data promising more volatility ahead.

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RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

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