Why Forex Liquidity Replenishment Has No Fixed Recovery Time
Summary
The document asks how long an FX order book takes to recover after a large trade consumes available liquidity. It defines recovery as the return of the spread for a specified trade size to its prior level, using a hypothetical EUR/USD book as an illustration. The example distinguishes the top-of-book spread from the effective spread for a larger order.
The response explains that spot FX has no single centralized order book, and aggregated liquidity can be misleading because the same orders may appear in multiple books. It also notes that quoting increments vary and that spreads are commonly expressed in pips. Most importantly, replenishment speed varies substantially and follows intraday seasonal patterns, so the document gives no general recovery-time estimate. Its example is fictitious, and actual measurement would require venue-specific data and a clearly defined aggregation method.
Key ideas
- FX lacks a centralized order book, so aggregated liquidity may include duplicated orders.
- The spread paid by a large order can differ from the quoted top-of-book spread.
- Price increments vary across FX order books, affecting which quotes are possible.
- Liquidity replenishment is volatile and seasonal, so a single typical recovery time is not established.
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# How fast is the forex market regenerated? # How fast is the forex market regenerated? I'm doing some statistics in order to evaluate the Forex market profitability. I first define what I call "regeneration of the market". For example, the following fictive order-book of EURUSD: ``` ASK: 20M 1.10010 8M 1.10005 2M 1.10002 BID: 1M 1.99999 9M 1.99995 15M 1.99990 Spread for 10M: 0.00010 ``` If I open a BUY position of 10 millions, the order-book will be the following: ``` ASK: 20M 1.10010 BID: 1M 1.99999 9M 1.99995 15M 1.99990 Spread for 10M: 0.00015 ``` I call the market "regenerated", when there is again a spread of 0.00010 for a 10M position. The spread of 0.00010 is fictive, I don't know what is the average spread for 10M positions. So, just after having opened a position, how much time a trader will have to wait before there will be again the average spread for a 10M position ? I know it is hard to give a precise answer, but I would like to have an approximation or an average. ## Answer by AlexVI (score 1) https://quant.stackexchange.com/a/78253 let's start with a couple of errors in your question: - you cant have the best bid at 1.99999 and the best offer at 1.100002. I guess you meant 1.09999 - as said in the comments there is no centralized order book in FX. You can aggregate them but beware of mirage liquidity (same orders lying in several orderbooks) - some orderbooks have different minimum tick sizes. main ones in eurusd are quoting in 0.5 pips, so you couldnt find any price like 1.10001, it will be 1.10005 or 1.10000. - in FX it s easier (and the best practice) to speak in pips (10-4 for EURUSD). In your orderbook, the top of book spread is 0.3 pips. But the spread for 10M is 0.9 pips. To answer your specific question, speed of replenishment is very volatile and with a high level of seasonality, specially intra day; so it s hard to give you a specific answer.
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