Jul 21 2008
What Makes a Good Trading Market?
Regardless of which instrument you are trading – beit stocks, municipal bonds, US treasuries, agricultural futures, foreign exchange, or any of the countless others – the attributes that determine the viability of a market as an investment opportunity remain the same. Namely, good investment markets all possess the following characteristics: liquidity, market transparancy, low transaction costs and trending markets.
Liquidity
Liquidity, the term used to qualitatively assess how easily trades can be entered and exited, is of prime importance to all traders. Trading essentially involves two transactions: the opening of a position, followed by the subsequent closing of that position. Liquidity which is highly correlated to volume, assesses how easily traders can enter and exit positions.A liquid market is a market where participants can rapidly execute large volume transactions with little impact on prices.
Markets that have high daiy turnover generally offer the most competitive prices and the best execution. Traders participating in illequid markets will experience delays and market order fills could potentially be at a very different price from the market rate when the order was initially placed(slippage).
So when it comes to forex trading and what makes a good trading market, this is just a taste of what’s to come. You can use all of this with online forex trading.
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