Why it matters
Knowing who provides liquidity helps explain spread changes, requotes, and why fills degrade when uncertainty rises.
Decision use: treat this term as a risk input. If you can’t observe it, you can’t size for it.
Common trap
Assuming ‘the market’ is a single thing. Liquidity is supplied by participants with risk limits. When their limits tighten, the market changes.
Example
During calm London hours, multiple LPs compete and EURUSD spread is tight. Around a release, LPs widen or pull quotes. The spread regime changes because the suppliers changed behavior.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.