#Liquidity101 is liquidity evaluated before entering a position?

Evaluating liquidity before opening a position is an essential practice for any trader seeking efficient execution and to avoid unpleasant surprises. One of the most direct metrics for measuring liquidity is trading volume. A high daily or session volume indicates that there is a lot of buying and selling activity, which generally translates into good liquidity. Another crucial tool is the order book (Depth of Market or DOM), which shows the number of pending buy and sell orders at different price levels. A "deep" order book (with many orders on both sides of the current price) is a sign of high liquidity.

Additionally, the "bid-ask spread" (the difference between the buying price and the selling price) is an instant indicator of liquidity: a narrow spread suggests high liquidity, while a wide spread indicates the opposite. It is also important to consider the time of day or trading session, as liquidity tends to be higher during peak hours of global markets (such as when the London and New York sessions overlap). Finally, observing the recent price behavior and whether large movements occur with low volumes can be a warning sign of poor liquidity. Analyzing these factors together will give you a clear picture of how easily you can enter and exit a position without significantly affecting the price.