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Selasa, 31 Mei 2016

Liquidity myth – Structuring orders to capitalize on illiquidity

We have all heard the 5 trillion-dollar

figure, and initially, normally the first time we see or hear it posted online,

we have been ushered into a brief instance of truly inspired awe as we tried to

contemplate the shear size of this market we all love and hate in equal

portions.


BUT… have you ever really dissected that number? I mean really pulled it apart

to see what the reality is and understand the true ‘depth’ of the FX retail

marketplace? What was that? Did I hear an overwhelming under-the-breath murmur

of noes? Well, then let’s have a quick flashback to middle school mathematics

and run some numbers…


That famous 5 trillion dollar figure is divided over 150 plus currency pairs

and over each individual tick, or price change, that happens throughout the day,

with the major pairs seeing dozens of ticks per second.


Now even at one tick per second that is 86,400 ticks a day with an

available volume of 57 million per tick, but don’t get too excited. Over 80% is

focused on trading the Euro Dollar pair exclusively, that leaves you with 11.4

million spread out over the 149 plus other pairs in the market. You need to

also keep in mind that Dark Pools, or the liquidity that is passed between

banks and intermediaries, that does not make its way to the open marketplace,

as to not cause price fluctuations, makes up a large portion of that famed

estimate.





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