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Why Should You Work With Excess Liquidity In Today’s Low-Rate Environment?

Blog | 06 May 2021 06:08/PM GMT

Today’s low-rate interest is one of the biggest factors that influencing the forex market and the market participants such as institutional or retail investors have to identify the importance of excess liquidity.  

However, it would be challenging in today’s low-rate environment if using excess liquidity profitably. Thus, we have a starting point to reconcile today’s low interest rates and high levels of liquidity.  

Essentially, liquidity refers to how active a market is that determined by the depth of bid and ask orders. In a liquid market, participants can bid or ask quickly. 

Despite the pandemic, many participants faring well and it is a good time to review some fundamentals of the forex market. This article will explain why should you work with excess liquidity in today’s low-rate environment. 

Interest Rates – A Matter For Forex Market Participants 

The rate changes have a great impact on the forex market participants. A good understanding of the interest rates helps market participants how to predict and react to any volatile moves. Besides, it also leads to higher profits.  

The higher the rate of return on currency invested, the more interest is accrued, and the higher the benefit in the forex market. 

As interest rates have the potential to wipe out all interest-bearing benefits, it should be watched carefully.  

It is important for a market participant to do the following once they have determined the market movement: 

1) Take action right away! When a surprise occurs, the market moves at a breakneck pace. This is because all traders compete to be the first to bid or ask (depending on a hike or cut) ahead of the crowd. If done correctly, quick action will result in a significant benefit. 

2) Keep an eye out for a volatile pattern reversal. At the first release of data, market participant opinion appears to rule the market, but the trend will most likely continue on its original course. 

Low-Rate: Work With Excess Liquidity  

Working with the excess liquidity in today’s low-rate environment will help to improve your approach toward a liquid market.  

Liquid markets such as forex tend to shift in smaller increments because of their high liquidity. This also results in lower volatility. In the forex market, extreme and unexpected changes are possible.  

The technical analysis is influenced by the level of liquidity. So, technical patterns and breakouts are likely to be accurate and reliable when the market is more liquid. 

A ‘thin’ or illiquid market can also become volatile. With less orders to absorb market fluctuations, bidders and askers find it easier to push prices up and down.  

As this happened, a liquidity provider will make sure that more price stability is achieved. They will be taking a position in forex pairs that can be offset with another market maker.  

As a reputed and trusted liquidity provider, Doo Clearing continues to expand its liquidity offerings. At Doo Clearing, we have created 100% real-time trading (Direct Market Access and Straight Through Processing mode) and up to 99.99% system availability. This also includes as low as 1ms trade execution time, to create the ultimate trading experience. 

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About Doo Clearing    

Doo Clearing is part of The Doo Group, aiming to offer an institutional and bespoke level of liquidity access and clearing services for Forex and CFDs in equities, future and commodities, and other financial products.    

With the robust clearing system powered by Doo Tech, Doo Clearing is now serving brokers, broker-dealers, hedge funds, family offices, fund managers, and professional traders globally.    

Currently, Doo Clearing provides liquidity access and clearing services via our regulated entity in the United Kingdom. The Doo Group has other regulated entities in the United States, Mauritius, and Vanuatu, with operating centres in Hong Kong, Dallas, Singapore, Kuala Lumpur, and among others.   

To get started, contact Doo Clearing’s Specialist team today for an insightful preview of how we can bring your brokerage to the next level.  

London Office    

Email: [email protected]    

Website: www.dooclearing.co.uk   

Hong Kong Office    

Email: [email protected]    

Website: www.dooclearing.c