What is liquidity and what is its significance?
Liquidity refers to the availability of a product and ensures market participants have the ability to buy and sell easily.
A liquid market increases the likelihood for finding a counterparty when entering or exiting a trade.
What is volume a measurement of in trading?
Volume in trading refers to the total number of contracts exchanged between buyers and sellers of a market during trading hours over a given period.
Higher trading volumes are considered more positive than lower trading volumes because they indicate the availability of orders in the market allowing better order execution during the trading session.
What is open interest in the derivatives market?
Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset.
Open interest equals the total number of bought or sold contracts, not the total of both added together. Increasing open interest represents new or additional money coming into the market while decreasing open interest indicates money flowing out of the market.
Risks and opportunities for corporates and individual investors – Position and risk management
Risk management is the responsibility of market participants designed to limit risk exposures that specifically applies to the participants financial profile in the market.
The financial profile of a participant may include their role in the financial market or the amount of capital under their responsibility to be managed in the market, and therefore the risk variables that each would need to identify may be unique.
For both corporate and individual investors, the market to trade would be a key variable to clearly state and support with reasons for trading or investing. Reasons for selecting one market over another could include price volatility, liquidity, daily volume traded, size of the minimum price increment, and value of the minimum price increment. Comparing these variables between markets will help decide the suitability and/or risk of each.
For example, if bitcoin (BTC) moves around 1,000 points per day and each point is worth $1, a trader might experience a $1,000 fluctuation in their account balance for one day. Another example is the U.S Dollar / Singapore Dollar (USDSGD), which could move 70 pips or more per day and trading a standard lot size with each pip worth $10, a $700 fluctuation could be expected for one day.
Market participants may also manage their risk through the size of their positions. The larger their position size, the greater is their exposure and the smaller their position size their exposure is lower. Investors should determine the risk that would result from various position sizes and select the size that ensures that their risk limit is not exceeded.
Finally, setting stops with a specified loss amount provides protection if the market does not move in the desired direction. It helps to prevent creating a loss scenario which is larger than an account can handle.
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Editors’ Picks
EUR/USD tumbles below 1.1800 as Middle East turmoil drives US Dollar demand
The EUR/USD pair falls to near 1.1770 during the early Asian session on Monday, pressured by a renewed US Dollar demand. The Greenback gathers strength against the Euro as the conflict across the Middle East is heightening traders' anxiety, boosting the safe-haven currencies.
GBP/USD trims losses, retests 1.3460
After briefly challenging its key 200-day SMA near 1.3440, GBP/USD now manages to regain some balance and revisit the 1.3460 zone on Friday. Cable’s pullback comes as the selling pressure on the Greenback gathers traction, reigniting some recovery in the risk-linked space.
USD/JPY: Japanese Yen fights for control amid US-Iran war-led intense flight to safety
The Japanese Yen is trying hard to regain control against the US Dollar in a fight to emerge as the traditional safety bet as the war between the United States, Israel and Iran enters its third day. The USD/JPY pair is holding modest gains, divided between broad USD strength and increased safe-haven flows into the JPY, as markets run for cover in times of escalating Middle East conflict.
Editors’ Picks
Oil at a critical breakpoint: Will geopolitics trigger the next major move?
The week ahead blends two powerful forces: moderating economic momentum and increasing geopolitical tension. While US and Eurozone data suggest steady but unspectacular growth, rising friction between the US and Iran is injecting a fresh risk premium into energy markets. Macro is softening but geopolitics may dominate price action.
Gold seen through the roof as US, Israel and Iran war enters day 3
Gold is set for a huge bullish opening gap in Asian trading on Monday, with a flight to safety rush likely to sponsor the upsurge after the US and Israel struck Iran with heavy bombings over the weekend. More geopolitical headlines surrounding the Middle East conflict and Oil price movement remain in focus.
AUD/USD dives 1% as US-Iran conflict spooks markets
AUD/USD has opened with a 1% bearish opening gap, heading toward 0.7000 in a dramatic start to a new week. Risk-aversion remains at full steam after the US and Israel attacked Iran in a coordinated move over the weekend and Tehran retaliated to the attack with force. The higher-yielding Australian Dollar is heavily sold off in Asia.
Iran escalation: Quick thoughts on markets
Markets are likely to open the week with risk-off, with declines led by airlines, cyclicals and trade-exposed names, while energy, defense and “strategic” sectors may be relatively steadier.
Crisis in the Middle East: The market reaction
A primer on how markets will open on Monday, and why geopolitical risk may not be easily absorbed by financial markets this time around. Geopolitics and events between Iran, the US and the wider Middle East will dominate financial markets on Monday. The situation has continued to escalate as we move through Sunday.
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