Part five of GO's educational series, designed to help new traders understand the key forces that shape global markets.
You place a trade during a major news event, expecting to get in exactly where you clicked. Instead, your order is filled several points away. Or maybe you close your trading platform on Friday feeling good about a position, only to open it on Monday morning and find the market has moved wildly against you overnight, leaping right past your stop-loss.
Most traders experience these sudden gaps, spikes, and unexpected fills and write them off as the market being weird or just bad luck. But these moves are not random, and they are not just bad luck. They are the direct result of a specific market condition: a lack of liquidity.
In trading terms, liquidity is the ability to buy or sell a market at the price you expect, without your order significantly moving the price itself. When a market is liquid, it means there are many buyers and sellers actively trading at similar price levels.
How to measure liquidity live
The most practical way you can measure this live on your screen is by looking at the bid-ask spread. A tight spread means high liquidity. A wide spread means low liquidity. Underneath that spread is market depth (the actual volume of resting orders sitting above and below the current price).
Deep markets can easily absorb large orders. When depth is shallow, a single large order can slice through the available prices, moving the market significantly.
A tight spread means high liquidity. A wide spread means low liquidity. This is the most practical way to measure conditions live on your screen.
LIVE SCREEN SIGNALThe actual volume of resting orders sitting above and below the current price. Deep markets can easily absorb large orders.
ORDER BOOK STRUCTUREGaps and slippage explained
When liquidity disappears, the mechanics of price discovery break down. This creates two distinct phenomena that frequently trap unprepared traders.
A gap is a price move between one session's close and the next session's open with no trading in between. For example, if a stock closes at US$100 on Friday and opens at US$95 on Monday morning, it has gapped down.
Because there was no liquidity (no open market) over the weekend, any stop-loss orders placed at US$98 could not be executed until the market opened at US$95. Gaps are a direct result of liquidity disappearing overnight or over a weekend.
Slippage is the difference between the price at which you intend to execute a trade and the price at which the execution actually occurs.
If you click "buy" in fast-moving markets at 1.1050, but the order book is too thin to absorb your trade at that exact level, you might be filled at 1.1055. It happens because the order book did not have sufficient volume at your intended price to fill the entire order.
When market liquidity disappears and why
Liquidity is not a constant state. It ebbs and flows depending on the time of day, the economic calendar, and overall stress in the financial system. There are five conditions that reliably reduce market liquidity:
Institutional market makers and major trading desks are closed or running skeleton staff, resulting in far fewer orders sitting in the book.
All contracts for difference (CFDs) markets, especially indices, foreign exchange (FX) and crypto during the Asian session. Crypto is most exposed on weekends.
Wider spreads, gaps at the next session open, and larger slippage if orders are filled.
Market makers pull or reduce their orders to avoid being caught on the wrong side of a surprise print, causing the order book to temporarily empty.
FX pairs (especially US dollar (USD) pairs around Consumer Price Index (CPI) releases), gold, indices and bonds.
Spreads spike in the minute before data, fills can occur well away from the screen price, and fast initial moves often reverse.
Key liquidity providers are offline. London, New York and Tokyo holidays each reduce global book depth significantly.
Any market where that centre is a primary liquidity provider. For example, London holidays hit the euro (EUR), British pound (GBP) and gold; New York holidays hit the USD and equities.
Thin trading conditions, exaggerated price moves, and low directional conviction.
Session open sees order imbalances from overnight news accumulate; session close sees position squaring. Both create temporary thin conditions.
Individual stocks at equity open, FX at London open and New York close, and indices at open.
Gaps between prior close and open, sharp initial moves at open that may not be directional, and wider spreads in the first 15 minutes.
Fear causes market makers and institutional participants to step back simultaneously, removing liquidity precisely when it is most needed.
All markets simultaneously, such as the 2008 financial crisis, March 2020, or the August 2015 flash crash.
Everything moves together, spreads blow out, gold can fall despite being a safe-haven asset, and stops trigger in sequence, creating cascading moves.
The markets most exposed to liquidity risk
Liquidity behaves differently depending on the asset class being traded. Understanding these specific quirks is essential for navigating them.
Gold (XAU/USD) is highly liquid during peak hours, but in the minute before major data drops, spreads can widen significantly as market makers reduce their exposure. During genuine market panics, gold can fall sharply, not because the safe-haven thesis is broken, but because liquidity stress forces the selling of all liquid assets to cover margins elsewhere (as seen in March 2020).
Bitcoin and other cryptocurrencies trade 24/7, but weekend liquidity is structurally much thinner than weekday liquidity. Altcoins have significantly less depth than Bitcoin, meaning relatively small orders can move the price substantially, often contributing to flash crashes. Explore how these two classes behave differently in our gold vs cryptocurrency CFD guide.
Liquidity in currency markets follows the sun, peaking when major financial centres like London and New York overlap. The Australian dollar against US dollar (AUD/USD) pair is most liquid during the Sydney and Tokyo sessions overlapping with the London open, but can be surprisingly thin at the very start of the Sydney session.
Equity indices like the Australian Securities Exchange 200 (ASX 200) index can gap at the open as overnight news accumulates. The first 15 minutes after the opening bell are typically the most volatile and least reliable directionally as the full order book assembles and liquidity builds.
While benchmark US Treasury markets are massive, their liquidity thins out significantly in off-hours sessions. Around major data releases, bond yields can experience sharp, exaggerated initial reactions because liquidity temporarily vanishes from the order book.
Key timing and risk factors to monitor
Traders do not need to be paralysed by liquidity risk, but knowing when to pay close attention is critical. The overnight session and weekends (especially for crypto and equity indices) are prime environments for thin trading conditions.
The minutes immediately before major data releases, the first and last 15 minutes of a trading session, and periods of genuine global market stress are all environments where traders should anticipate wider spreads and erratic price action. Checking the economic calendar and monitoring active session hours allows market participants to prepare for these conditions rather than being caught unprepared.
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Overnight & weekends: Institutional market makers and major trading desks are closed or running skeleton staff.
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Minutes before news releases: Order books temporarily empty out before major macroeconomic prints or central bank interest rate decisions.
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First & last 15 minutes: Session open imbalance resolution and session close position squaring create temporarily thin conditions.
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Systemic market stress: Fear causes institutional participants to step back simultaneously, removing liquidity precisely when it is most needed.
Liquidity is not a constant. Slippage and gaps are not "bad luck"—they are the direct mechanical cost of trading when the order book thins out.
Checking the economic calendar and monitoring active session hours allows market participants to prepare for these conditions rather than being caught unprepared.
Test your knowledge
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice.
