talking about liquidity

J

Javier

In futures market:
I have heard in all of the world, how important is liquidity to trade. Asuming that 90% losse, if i trade 1 contract (as the mayority of participants), should i really need liquidity?

Isn`t liquidity move the price slower? So no move, no profit...

And last but no least, can HFT consume liquidity and force us to go in only one direction? Please would like a bit of light.

Why is liquidity that important?
 
Javier said:
In futures market:
I have heard in all of the world, how important is liquidity to trade. Asuming that 90% losse, if i trade 1 contract (as the mayority of participants), should i really need liquidity?

Isn`t liquidity move the price slower? So no move, no profit...

And last but no least, can HFT consume liquidity and force us to go in only one direction? Please would like a bit of light.

Why is liquidity that important?
More...
a "liquid" market has a tight bid/ask spread. In otherwords, there are many buyers and sellers, and that is good for you because they keep the spread tight for you.

In an illiquid market, the sprad may be very wide and that is bad for a small trader because a big trader can move an illiquid market, and it is just luck if you get in or out right.

No, I wouldn't trade an illiquid market unless I had knowledge of the fundamentals. For instance, a farmer trading corn (and corn is very liquid, but you get the idea.)

A tight market like es is wonderful for a small trader, because if your order is in even a millisecond before Goldman, they can't get filled until you do.
 
It depends on what you do. If you do scalping, the liquidity is very important because you need tight spreads to make a profit and you need do be able to close your position at any time. But if you do swing trading, you can invest on quite illiquid markets, although the moves can be very strong due to the small number of participants.

The vast majority of HFT orders are cancelled before the price hit them, so I think that the HFT don't force us to go in one particular direction.
 
Llama Trading said:
The vast majority of HFT orders are cancelled before the price hit them, so I think that the HFT don't force us to go in one particular direction.
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Not in the long term but in the short term they definitely contribute to it. When you see the "other side" of the book ask yourself how much of that liquidity is real and how much can be yanked on a dime. Highly liquid markets help protect against this obviously but size is also relative.

It's not just liquidity that's desired its heterogeneity among participants - meaning the more and varied the better.
 
The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets. 1. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment.
 
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