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Relation between Liquidity and Volatility?

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  • Relation between Liquidity and Volatility?

    For the forex market, Liquidity and Volatility is totally different. Liquidity means how many traders are actively trading while volatility refer to market prices change.
    Now my question is what's a correlation between Liquidity and Volatility? Either change in one value effect to another or not?

    Anyone knows, please share your knowledge or analysis here...

  • #2
    In my opinion, liquidity is a good benchmark for understanding which asset is the most interesting at the moment and which asset should be included in your work or investment portfolio for the near future. If we talk about volatility, it defines the price trend to a greater extent, I would not link them into one component, but rather define them as two factors that do not depend on each other and can just be useful for a clearer analysis.


    • #3
      The depth of buy and sell orders in the market is referred to as market liquidity. A liquid market is one in which you can quickly buy or sell.

      The rate of change in a market is referred to as volatility. A volatile market is one in which prices fluctuate rapidly over a short time period.


      • #4
        When the share price varies by more than 1% every day over an extended period of time, the market is often described as "volatile."

        Liquidity is the simplicity with which an asset can be converted into cash at its fair market value. A range of liquidity exists.‚Äč