Last Updated on: 13th February 2021, 04:36 pm
When the spread is zero, this is referred to as a “choice price“. This is the simplest metric to compare brokers (and LPs).
A narrower spread implies a deeper market where there is a sufficient volume of open orders so buyers and sellers can execute a trade without causing a big change in the price.
That’s in contrast to a weak or “thin” liquidity environment, where large orders tend to move the price, increasing the cost of executing trades, and deterring traders, in turn, causing a further decline in liquidity.
An important driver of liquidity is the rate of change in prices.
In times of extreme price volatility, spreads tend to widen and brokers’ ability to execute large orders is reduced.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.