Ask three different people in the FX market what liquidity conditions are like today and you might get three very different answers.
For example, one person might argue that there is less liquidity in the market today as regulations have seriously hampered both the ability and willingness of many banks to hold significant risk.
On top of this, they might add, more activity now goes through multibank channels where liquidity providers can simply pull their prices if market conditions get tough. After all, we’ve had a flash crash in the British pound, a major currency, something which clearly highlights the fragility of liquidity in the market today.
Nonsense, another person might reply. They might argue that there is more liquidity than ever before and that while, yes, the average trade size has come down, all this has done is introduce more granularity to trading.
And while there might not be $200 million showing up at the top of the order book like in the “good old days”, spreads have contracted massively. Indeed, they might point out that the abundance of liquidity in G10 spot pairs has pushed pricing inwards to a point where it’s practically free to trade these currencies.
Which, if any, of these two perspectives is right? And why is there such a divide amongst market participants with regards to the perception of liquidity in the FX market today?
At the Forex Network Chicago conference watch representatives from the buy side, sell side and trading platforms discuss and debate exactly these questions during the opening panel of day two Mind the Gap: Liquidity Haves and Have Nots.