Liquidity windows and execution

A scalping method that works at one time of day can fail at another, simply because costs change. Spreads tighten when many participants are trading and widen when few are, or when news creates uncertainty. Execution quality, meaning how quickly and at what price your orders are filled, matters just as much. This lesson covers when to trade and how orders actually get filled.

Liquidity and the trading sessions

Liquidity is how easily you can buy or sell without moving the price. In forex, liquidity follows the major financial centres through the day. The times below are approximate, in UK time, and shift by an hour for a few weeks a year because countries change their clocks on different dates.

Many scalpers concentrate on the London session and the overlap, when spreads on major pairs are usually at their tightest. Liquidity is not the only factor: a pair that is liquid but not moving offers little to a scalper either.

When spreads widen

Spreads tend to widen at predictable times:

• Around major news, such as central bank decisions, employment data and inflation figures. Liquidity providers pull back just before the release and prices can jump several pips at once.
• Around the daily rollover, commonly 5pm New York time (about 22:00 UK time for most of the year), when many banks are adjusting positions and liquidity is thin.
• At the weekly open on Sunday evening, and during public holidays in major centres.

Worked example: a widened spread

Illustrative figures, continuing from the previous lesson: a 5-pip target, a 5-pip stop and 0.7 pips of commission.

• Normal spread 1.0 pip: total cost 1.7 pips; break-even win rate (5 + 1.7) ÷ 10 = 67%.
• Spread widened to 4.0 pips just before a release: total cost 4.0 + 0.7 = 4.7 pips; break-even win rate (5 + 4.7) ÷ 10 = 97%.

At 97%, almost no method can work. For most scalpers, the practical rule is to stay flat in the minutes around scheduled high-impact releases and around rollover.

Slippage

Slippage is the difference between the price you requested, or the price at which your stop was triggered, and the price you actually received. It happens because prices can move between the moment an order is sent and the moment it is filled, especially in fast markets.

Slippage can be positive as well as negative, but in fast, one-directional moves it tends to work against stop orders. For a scalper, it adds directly to costs. If a 5-pip stop slips by 1.5 pips, the loss becomes 5 + 1.5 + 1.7 = 8.2 pips instead of the planned 6.7 pips.

Latency

Latency is the delay between your action and the broker's server receiving it. It depends on your internet connection, your distance from the server and the platform you use. A few tenths of a second rarely matters to a swing trader but can affect fills for a scalper in fast markets. Some traders use a virtual private server located near their broker's servers to reduce latency. That reduces delay but does not remove slippage, and it adds a cost.

Order types and how they fill

Stop-loss orders are usually stop orders, so they can slip. That is a reason to avoid holding positions into events where prices may jump.

Key takeaways

• Spreads are usually tightest in the London session and the London–New York overlap for major pairs.
• Spreads widen around major news, around the daily rollover and at the weekly open; many scalpers stay flat then.
• A spread that widens from 1.0 to 4.0 pips can push the break-even win rate on a 5-pip trade to 97%.
• Slippage and latency add to costs; stop orders can slip in fast markets.
• Market orders fill but not at a fixed price; limit orders fix the price but may not fill.