Liquidity in Forex is not uniform; it varies by time of day, currency pair and prevailing economic events. Major pairs like EUR/USD and USD/JPY see the deepest order books during overlapping London New York trading hours, with average bid‑ask spreads often under half a pip. In contrast, exotics such as USD/TRY or USD/ZAR can exhibit sporadic liquidity, wider spreads and occasional price dislocations, especially outside regional market hours. Understanding this microstructure is vital for trade planning.
Market makers and liquidity providers post two‑way quotes to maintain orderly markets, but their behavior shifts during risk‑off episodes or central bank announcements. During high‑volatility windows, some liquidity providers withdraw their quotes to avoid adverse selection, causing spreads to widen. Electronic communication networks (ECNs) aggregate orders from multiple participants, providing greater transparency and deeper depth, but may suffer from latency in thinner markets. Traders interested in high‑frequency or large‑volume strategies must therefore carefully assess the execution venue’s depth, latency and counterparty creditworthiness to avoid slippage and ensure reliable fills.