“Volatility, Liquidity and Risk

 > Explanatory Article by Marios Kyriakou, MSc Economics

About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.

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<Last updated 25.04.2020>

Dear reader,

Hi! If you are interested in online trading you should read the below that provides an important explanation about volatility and risk in the market for CFDs.


Volatility, Liquidity and Risk in the Forex Market


> We call Volume/Quantity the amount traded when a transaction (Buy or Sell) takes place. Most of the trading volume comes from traders that buy and sell based on intraday price movements.

Liquidity is the amount of buying and selling volume happening at any given time. Volume traded in the Forex market is extremely high, thus there is much liquidity and prices update continuously each second since a huge number of transactions are happening continuously. Under normal market conditions, with you can instantaneously buy and sell as there will most probably be someone in the market willing to take the other side of your trade

In this kind of High Liquidity Environment, we have relatively small price changes while in an Illiquid environment we have big and sometimes huge price changes. Liquidity is very important because it determines how easily price can change over a given time period.

When prices change greatly, in a relatively small period of time, then we experience High Volatility in prices so we have Volatile Market Conditions. In such market conditions, the risk is higher for traders because the big changes happening in prices lead to higher profits but also lead to higher losses in a short period of time. When buying an asset at a certain price, and we experience a sharp and big drop in prices, then we experience high losses in a short period of time.



“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.

Thank you for reading my articles and watching my videos.”

Marios Kyriakou

Disclaimer: This article is intended for educational purposes only and does not replace independent professional judgement. Its purpose is to act as a complementary educational service to society, promoting personal development and social, economic and cultural progress of citizens. While this content has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the creator to the accuracy or completeness of the information presented or any other written or oral information made available to any interested party and any such liability is expressly disclaimed.
Risk Warning: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products involves substantial risk of loss as there is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. It is possible to lose all the initial capital invested.

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